2022: A Look Ahead
This month I wanted to touch on what the industry experts are expecting from the real estate market in the upcoming year.
Prediction 1: Experts are predicting 4 rate increases. Why?
The pandemic-related stimuluses brought interest-rates to all time lows, and simply put, rates are not supposed to be that low. The economy responded to this artificial rate compression with inflation, making the dollar worth less and bringing with it a higher cost of goods. As a way to combat inflation, the Fed will begin increasing rates.

Changes to the Fed policy will directly impact the mortgage industry.

How this affects you: As a prospective homebuyer, increased interest rates reduce your buying power. To put this in perspective, interest rates today are already 0.5% higher than they were in May 2020. On a $400K loan, this adds $86 to the monthly mortgage and equates to $31,064 in interest over 30 years.

Prediction #2: Inventory will still remain low.
As the demand for housing grows nationwide, 1.5 million homes need to hit the market every year to keep up with the demand for both new and replacement / second / vacation homes.

After the crash in 2008, the influx of new construction homes to the supply dropped significantly. We are currently averaging around 1.3 million +/- new homes being added per year.

Over the course of the last decade, this has left the market roughly 4.1 million homes short!

How this affects you: It would take us 6 months of properties being listed without ANY being sold to bring us to a normal ratio. With current trends, demand will continue to outpace supply with prices (and equity) in homes increasing.

Prediction #3: Rising interest rates and competitive markets will continue to weed out first time buyers and increase the average age of sellers.
Last year’s low interest rates ramped up the investor market, reducing overall supply, bringing cash-heavy buyers into the betting war and resulting in increased competition. Investors bought 18.2% of all homes last year – this number is up from 11.2% in 2020.

In 2022, it’s likely that this competitive market will continue, but rather be driven by those looking for a primary residence. We’ll see an increased buyer demand in Q1 / Q2 due to rate climb volatility. Consumers who have been on the fence about buying a home may decide to proceed, before rates go up.

Data from NAR’s annual Profile of Home Buyers and Sellers highlights a few trends that are likely a result of the supply issues and rising prices brought about by increasingly competitive markets:

• The buyer market is made up of fewer first time homeowners. 34% of buyers in 2021 were first time homeowners, down from 44% in 1981.
• The median age of a first-time buyer is 33, up from 28-29 in 1981,
• The average age of a seller in 2021 was 56 years old.

How this affects you: There’s not likely to be any relief for buyers in the traditionally busy spring market. Many sellers will still continue to see multiple offers, but buyers may not have as much liquidity to go 103%+ over list price.

Prediction #4: Technology will continue to impact the real estate world.
The Economist claims that data is considered one of the world’s most valuable commodities. It crafts personalized consumer experiences, drives business processes and can even help mitigate risk.

As more data becomes more readily available, consumers are becoming more educated, and real estate tech startups are shaping a changing digital home buying/selling landscape. As algorithms adapt and become smarter these disruptors aim to make the process easier for buyers and sellers.

How this affects you: Can technology really ever replace the agent? I’d love a chance to share my unique perspective on this and am happy to chat over coffee!

Want to learn more about any of the topics discussed today? Grab a slot on my calendar!