Last year was one for the real estate history books. The pandemic helped usher in a buying frenzy that caused home prices to soar nationwide by a record 19.9% between August 2020 and August 2021.1
However, there were signs in the fourth quarter that the red-hot housing market was beginning to simmer down. In the month of October, only 60.3% of sales involved a bidding war—down from a high of 74.5% in April.2
While this trend could be attributed to seasonality, it could also be a signal that the real estate run-up may have passed its peak.
So what’s ahead for the U.S. housing market in 2022? Here’s where industry experts predict the market is headed in the coming year...
MORTGAGE RATES WILL CREEP UP
Most economists expect to see mortgage rates gradually rise this year after hitting record lows in late 2020 and early 2021.3
Freddie Mac forecasts the 30-year fixed-rate mortgage will average 3.5% in 2022, up from around 3% in 2021.4 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 2001 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. According to industry trade blog The Mortgage Reports, “Between 1971 and December 2020, 30-year mortgage rates averaged 7.89%.”6
What does this mean for you?
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, act soon before rates go up any further. I’d be happy to connect you with a trusted mortgage expert in my network.
THE MARKET WILL BECOME MORE BALANCED
In 2021, we experienced one of the most competitive real estate markets ever. Fears about the virus and a shift to remote work triggered a huge uptick in demand. At the same time, many existing homeowners delayed their plans to sell, and supply and labor shortages hindered new construction. This led to an extreme market imbalance that benefitted sellers and frustrated buyers.
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 Data from Realtor.com released in November showed that 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
What’s causing this change in market dynamics? The real estate market typically slows down in the fall and winter. But economists also suspect a fundamental shift in supply and demand. 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
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. And in a recent Reuters poll, nearly 80% of property analysts said they expect housing affordability to worsen over the next several years.9
What does this 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. Don't get me wrong, "some relief" does not mean that it will be easy. It's been a seller's market in the metro Portland / Vancouver area for over a decade now, and that has not changed; nor is it likely to change in the forseeable future.
Of the six major metropolitan markets on the west coast to move to, Porland/ Vancouver is—by far—the least expensive option. So we can expect to continue to garner a fair share of people from the midwest who are tired of tornados and muggy summers, folks from the southeast who are sick of hurricanes, and New Englanders who have grown weary of blizzards. That continued influx of people, in conjunction with the Urban Growth Boundary (UGB) keeping new construction (and urban sprawl) in check, it would be foolhardy to expect a drastic shift in local real estate dynamics; but at least the absolute craziness of 2021 is likely behind us.
If you’re a seller however, it’s definitely a favorable time to cash out your big equity gains! And with a bit more inventory on the market, you’ll have something of an easier time finding your next home when compared to last year. Reach out to me 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 2021.8 But 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 this 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. I have been hearing people say that they are waiting to buy a home until after a big market correction since 2011; and now, unfortunately, many of those on-the-fencers can no longer afford to buy a home at all, or they can buy a home, but nothing as nice as what they could have bought just a few years ago. 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.
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 singlefamily 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 this mean for you?
Both property and rent prices are expected to continue rising in the metro Portland/Vancouver area. 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.
If you are interested in investing in rental property there is a ton of opportunity for investors, provided that you are patient and willing to wait until a stellar property comes along... just don't buy in the City of Portland. Portland has created a very hostile environment to landlords that should be avoided; but surrounding communities are fine.
Bottom Line: No matter what your real estate goal is, know that I can help you make the most of today’s real estate market.
I’M HERE TO GUIDE YOU
While national real estate numbers and predictions can provide a “big picture” outlook for the year, real estate is local.
As a local-market expert, I 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. I am knowledgeable about both the new construction and resale home options in the Portland/Vancouver area (and even further afield), and I can help you make an informed decision, negotiate a fair price, and avoid mistakes that can cost you time and money. So give me a call today to schedule a free, no-obligation consultation—and let’s start searching for your next home!
Legion Anders
Call me: 503-998-0500
Email me: StachedAgent@gmail.com
BBB A+ Rating
37 Years Real Estate Experience
Managing Principal Broker: Oregon & Washington
Stache Real Estate
Sources:
3. Freddie Mac - http://www.freddiemac.com/pmms/pmms30.html
4. Freddie Mac - https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-macstrong-housing-market-will-continue-even-rates-and
5. Mortgage Bankers Association - https://www.mba.org/2021-press-releases/october/mba-annual-forecast-purchaseoriginations-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
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