Real Estate Market Forecast for 2022

 It's Anybody's Guess But...

 With 10 years having now passed since the Great Recession, the U.S. has been on the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy. However, hot economies eventually cool and with that, hot housing markets move more towards balance. Housing market forecasts are essentially informed guesses based on existing patterns, and there are plenty of guesses going around,

While the real estate pace of 2021 appears to be reverting to seasonality as we approached 2022, demand is not waning. Increasing interest rates will almost certainly have a greater impact on the national housing market as we move into 2022 than any other factor. Sellers remain in an advantageous position as long as the inventory remains at or near its current level. Housing supply is and will likely remain a challenge for some time as labor and material shortages, as well as general supply chain issues, delay new construction.

The majority of forecasters; Forbes, Realtor.com, National Association of Realtors, Rueters, etc., are predicting that the increase in home prices will continue, although not at the near 20% it was in 2021. The predictions range from 7%-11% increase for 2022.

The demand for buying will likely remain high as long as interest rates stay below 4%, which makes for stronger buying power for those borrowing money. If interest rates climb, the buying power weakens and first-time buyers and investors alike will feel the pinch. Home prices will be out of reach for the average buyer and the numbers get tight for the investor looking to leverage their money.

 

MORTGAGE RATES WILL CREEP UP

Most economists expect to see mortgage rates gradually rise this year after hitting record lows in late 2020 (2.7%) and early 2021.³

The Mortgage Bankers Association predicts that rates will tick up to 4% by the end of the year. "Mortgage lenders and borrowers should expect rising mortgage rates over the next year, as stronger economic growth pushes Treasury yields higher," said Mike Fratantoni, chief economist for the Mortgage Bankers Association at their 2021 Annual Convention & Expo in October.⁵

However, it’s important to keep in mind that even a 4% mortgage rate is low when compared to historical standards. I’m sure there are some of you that remember when interest rates were double digits.  According to industry trade blog The Mortgage Reports, “Between 1971 and December 2020, 30-year mortgage rates averaged 7.89%.”⁶

What does it mean for you as a buyer? Low mortgage rates can reduce your monthly payment and make homeownership more affordable. Fortunately, there’s still time to lock in a historically low rate. Whether you’re hoping to purchase a new home or refinance an existing mortgage. We’d be happy to connect you with a trusted lending professional in our network to evaluate your buying plan.

 

THE MARKET WILL BECOME MORE BALANCED

In 2021, we experienced one of the most competitive real estate markets ever. The pandemic and a shift to remote work triggered a huge uptick in demand. Many existing homeowners delayed their plans to sell, and supply and labor shortages hindered new construction, all resulting in an historically low inventory of homes for sale. 

These simultaneous events created a very competitive market for buyers and a home sellers windfall. The average home seller in California had a cash gain of $322,000.¹⁵ According to George Ratiu, director of economic research at Realtor.com, “Prices and sellers reached for the moon [last] year. It looks like we are now about to move back to earth.”⁷

Nationally listing price reductions had more than doubled since February 2021, and the average days on market (an indicator of how long it takes a home to sell) has been slowly creeping up since June.⁷    Our area has not showed quite the same effects, although some sales are not going as far over asking price as they were. Over 60% of sales in our area went over asking price in 2021 and out average Days on market was 10 days¹⁵. The market is still very competitive, and buyers need to be well prepped before jumping in.

At the National Association of Realtors’ annual conference last November, the group’s chief economist, Lawrence Yun, told attendees that he expects increased supply to come from an uptick in new construction—which is already underway—and an end to the mortgage forbearance program. “With more housing inventory to hit the market, the intense multiple offers will start to ease,” he said.⁸  Our area does not usually follow the same trend as the national market but more inventory may present itself with sellers seeing the opportunity to cash in and as the supply chain opens up for builders.

Demand is also predicted to wane slightly in the coming year. Rising mortgage rates and record-high prices have made homeownership unaffordable for a growing number of Americans. In Santa Cruz County only 17% of residents can afford the median priced home.¹⁵

What does it mean for you? If you struggled to buy a home last year, there may be some relief on the horizon. Increased supply and softening demand could make it easier to finally secure the home of your dreams. If you’re a seller, it’s still a great time to cash out your big equity gains! And with more inventory on the market, you’ll have an easier time finding your next home. Reach out for a free consultation so we can discuss your specific needs and goals.

 

HOME PRICES LIKELY TO KEEP CLIMBING, BUT AT A SLOWER PACE

Nationally, home prices rose an estimated 16.8% in 2021⁸ , Santa Cruz County saw a 20% rise¹⁵. However, the average rate of appreciation is expected to slow down in 2022.

Danielle Hale, chief economist at Realtor.com, told Yahoo! News, “Home asking prices have decelerated in the second half of 2021, with median listing price growth slipping from a peak of 17.2% in April to just 8.6% in October.”¹⁰

But experts disagree about how much more property values can continue to climb this year. Goldman Sachs predicts that home prices will rise by 13.5%, while Fannie Mae and Freddie Mac are forecasting a 7.9% and 7% rate of appreciation, respectively.²

However, not all analysts are as bullish. The National Association of Realtors predicts a 2.8% rate of appreciation for existing homes and 4.4% for new homes, while the Mortgage Bankers Association expects the average home price to decrease by 2.5% by the end of the year.^10,2

According to Hale, “With prices near all-time highs and mortgage rates expected to rise, we expect this slowdown in prices to continue.”¹⁰

What does it mean for you? If you’re a buyer who has been waiting on the sidelines for home prices to drop, you may be out of luck. Even if home prices dip slightly (and most economists expect them to rise) any savings are likely to be offset by higher mortgage rates. The good news is that decreased competition means more choice and less likelihood of a bidding war. We can help you get the most for your money in today’s market.

 

RENTS WILL CONTINUE TO RISE

Along with home, gasoline, and used vehicle prices, rent prices rose dramatically last year. According to CoreLogic, in September, rents for single-family homes were up 10.2% nationally year over year.¹¹ And economists at Realtor.com expect them to climb another 7.1% in 2022.¹²

“Homes are expensive now...but for most people, the comparison that is most important is how that cost of homeownership is going to compare to the cost of renting,” Zillow Senior Economist Jeff Tucker told CNBC in November.¹³

Tucker also pointed out that rent is less predictable than a mortgage—and more likely to go up along with inflation.¹³

Real assets, like real estate, are often used as a hedge against inflation. That’s because property values typically rise with inflation.¹⁴ And when a homeowner takes out a mortgage, they lock in a set housing payment for the next 30 years.

In contrast, renters are at the mercy of the market—and they don’t gain any of the benefits of homeownership, like tax deductions, equity, or appreciation.

George Ratiu of Realtor.com told CNBC that he advises buyers to consider their budget and time frame. If they plan to stay in the home for at least three to five years, he believes it often makes sense to buy.¹³

Fortunately, it’s shaping up to be a better year for buyers. “I think 2022 has the promise of providing less competition, a lot more homes to choose from, and, as a result, a lot more approachable prices,” Ratiu said.¹³

What does it mean for you? Both property and rent prices are expected to continue rising. But when you purchase a home with a fixed-rate mortgage, you can rest assured knowing that your monthly mortgage payment will never go up. Whether you’re a first-time homebuyer or a real estate investor, we can help you make the most of today’s real estate market.

 

WE’RE HERE TO GUIDE YOU

While national real estate numbers and predictions can provide a “big picture” outlook for the year, real estate is local. And as local market experts, we can guide you through the ins and outs of our market and the local issues that are likely to drive home values in your particular neighborhood.

If you’re considering buying or selling a home in 2022, contact us now to schedule a free consultation. We’ll work with you to develop an action plan to meet your real estate goals this year.

 

Sources:

1.    Fortune -
https://fortune.com/2021/11/04/us-home-prices-real-estate-forecast-2022-outlook/

2.    Fortune -
https://fortune.com/2021/11/29/housing-market-real-estate-predictions-2022-forecast/

3.    Freddie Mac -
http://www.freddiemac.com/pmms/pmms30.html

4.    Freddie Mac - https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-strong-housing-market-will-continue-even-rates-and

5.    Mortgage Bankers Association -
https://www.mba.org/2021-press-releases/october/mba-annual-forecast-purchase-originations-to-increase-9-percent-to-record-173-trillion-in-2022

6.    The Mortgage Reports -
https://themortgagereports.com/61853/30-year-mortgage-rates-chart

7.    Realtor.com -
https://www.realtor.com/news/trends/has-housing-market-peaked/

8.    National Association of Realtors -
https://www.nar.realtor/newsroom/nars-yun-says-housing-market-doing-well-may-normalize-in-2022

9.    Reuters -
https://www.reuters.com/world/us/rise-us-house-prices-halve-next-year-affordability-worsen-2021-12-07/

10.  Yahoo! News -
https://www.yahoo.com/now/where-home-prices-headed-2022-130012748.html

11.  CNBC -
https://www.cnbc.com/2021/11/16/inflation-rent-for-single-family-homes-surged-10percent-in-september.html

12.  Realtor.com -
https://www.realtor.com/news/trends/what-to-expect-in-2022-housing-market/

13.  CNBC -
https://www.cnbc.com/2021/11/23/rising-inflation-hot-housing-market-what-you-need-to-know-about-buying-a-home.html

14.  Money -
https://money.com/inflation-2021-stocks-bitcoin-gold-reits-commodities/

15.   California Association of Realtors, Deputy Chief Economist Oscar Wei.