Everybody can make predictions. However, not everyone can be right. So before I give you my market predictions in real estate for 2022 (which could still be wrong), I wanted to review my predictions for 2021.
Many people believed the market was going to crash last year, but mid way through the year, all the predictions began to change. These predictions were based on two things. The first data point was based on emotion – the market has to come down some time. The second data point was valid, but inaccurate – massive forbearances leading to massive foreclosures. As people began to re-start their mortgage payments with the improving economy, the forbearance numbers quickly starting dropping. By May, the looming foreclosure picture became very clear that it was NOT going to happen. All the doom and gloom predictions became rosy for an increasing market into 2022.
Let’s contrast those predictions with my predictions back on January 2nd, 2021. (Skip to 2:13 if you want to get straight to it).
Not to toot my own horn, but I was the only one I know who nailed this prediction. That is the back drop for my market predictions in real estate for 2022.
Here’s a couple things that I am looking at.
Our inventory has been trending downward for quite some time. According to an article from CNBC.com, “The U.S. is short 5.24 million homes…”. Contributing factors to this are the increasing prices of homes along with increasing prices of materials to build homes & supply chain issues. This is not a problem that can be solved in the short term. It will probably take decades to catch up.
One of the benefits to sellers of low inventory means that you will have multiple buyers competing for your home. In 2021, high buyer demand continued to push inventory lower and prices higher. While many buyers find themselves “waiting it out”, especially local buyers here in Lewis County, the demand is just to great to keep pace. As more and more people move outward from the cities and begun working from home, rural and affordable counties realized a great influx of population. I do see this continuing, though, not at the current rate.
We’ve been experiencing historically low interest rates for at least a decade now. One of the major components driving the housing demand is buyer-friendly low interest rates. Other than making your mortgage payment more affordable, the hidden impact of interest rates is your buying power. On average, every time the percentage goes up you lose between 12%-15% of your buying power. For example, if you’re approved for $300,000 and the interest rate goes up from 3% to 4%, you’ll now only be approved for $265,000. Interest rates are going up, and have been held artificially low for some time. According to CNBC.com, “Mortgage rates hit 9-month high, and loan demand drops further“. I expect the interest rate to continue going up.
As you see on the news daily, our current social and political climates are extremely polarized. This could affect the market in a number of ways. The changes could be bad or good depending on how things shake out, but it makes it quite difficult to predict with any true certainty. That said, I truly believe that you can take my prediction to the bank pending any kind of random, unforeseen act that causes instability in the market.
Predicting the Future
So, without further ado, here is my analytical market predictions in real estate for 2022. Demand will slow. Price increases will continue, but slow down. Interest rates will hamper demand further. Builders will look do small neighborhoods so they are not too debt leveraged. In all, the market will continue to soften and we may reach the peak. However, don’t expect a crash or a drop. These prices are here to stay and every month you wait to buy, you are losing tens of thousands of equity gains.