Let’s talk about the housing prediction for 2022.
There are four things I want to discuss here with you:
Here we go…
I want to start with this article from Redfin, titled “Housing Market Update: Homebuyer Demand Dips as Holiday Lull Amplifies Market Cooldown.”
According to the article, “Redfin’s Homebuyer Demand Index fell for the first time since June.”
What does that mean?
Well, Redfin says, “Roughly 1-in-8 sellers cut their list prices during the four weeks ending April 17.”
That’s interesting to note because the one thing we can tie to that specifically is the interest rates going up.
And if you want to take a look at something even cooler—for me, at least—Redfin also showed a graph saying 3% of listings had price drops. You can check it out in the article.
But here’s something you should watch, though. Take a closer look at the trends from 2020 and 2021. Notice when the listings had price drops during the last two years: it’s during August, September, October, and November. That’s when the prices started dropping because, typically, during the summer, homes that didn’t sell lower their prices.
In 2022, though, listings started dropping their prices early, and the only thing we can attribute to this is the interest rates going up.
What is going to happen to the demand? It might continue to go down as long as interest rates continue to remain high.
Now, I’m not saying there’s going to be a crash. I want you to understand that and use the data I’m giving to see where the market is heading.
Next, there’s going to be less competition for homebuyers.
Some of the buyers that are out there looking for homes will either be completely pushed out of the market or they might try and hurry to purchase and lock in the rates before they continue to go up even more.
One thing we always forget to consider, with the interest rates going up, is that not everyone has good FICO scores. The average credit score is around 716 to 720, but some of us have scored lower than that. This means higher monthly loan rates, and with the interest rates going up, that is a serious jump in monthly interest for homebuyers.
This hurts a lot of potential buyers’ wallets, and they might decide that maybe now is not the right time for them to buy a home.
That’s going to soften the market a little bit as we keep going.
Will home prices keep going up?
That one gets a little interesting because the data I was looking up (courtesy of Keeping Current Matters) shows the mixed impact of rising rates on housing.
Excluding the time around 1993 to 1994 when the interest rates jumped up to 9.2%, and the months in 2005 to 2006 leading up to the housing bubble that took us all by surprise, on years with a healthy economy, a slight increase in interest rate affect home prices and caused a drop in home sales.
In 1996, a 1.2% increase in interest rates led to a 2% increase in home prices and a 2% decrease in home sales. From 1998 to 2020, a 1.8% jump in rates increased home prices by 13%, which is pretty massive.
Here’s what you need to understand: As interest rates go up, it doesn’t necessarily mean home prices will decrease automatically. Sometimes they jump up like crazy.
It’s because there are a lot of other factors at play that affect home prices, specifically the fact that there are still not enough homes on the market. And if there isn’t enough supply to meet the demand, it can drive prices up a little bit.
I’m not talking about those sellers that put their homes up for an unrealistically high price. Those prices are going to come down.
But looking at market value, especially in areas where demand is hot, like Miami, the market’s not going anywhere. The region is another factor in home prices as well.
Home prices are going to continue to go up because, as this article from NPR says, there is a severe shortage of homes in the US.
One of the reasons is a lack of a workforce.
According to the article, “A few years later, as Americans started buying more homes again, building stayed below normal. And that slump in building continued for more than a decade. Meanwhile, the largest generation, the millennials, started to settle down and buy houses.”
Another side to that is rentals. Here’s what to know about rent prices in 2022.
But Nexstar says, “But what’s causing rent to rise? Jon Leckie, a data journalist with Rent.com, said there may be two contributing factors: migration and a hot home-buying market.”
“‘When the pandemic hit, a lot of people left major cities, which increased prices in the suburbs and exurbs. But as rents fell in the core metros, people returned, including those who couldn’t previously afford to live in core metros,’ Leckie told Nexstar.” (excerpt from News Nation)
This is what’s happening all across the US.
Just like people buying homes, people wanting to rent, and people moving back. Because what’s happening this April? Companies are asking their employees to come back to work.
Some people who bought somewhere else, around 50 minutes away from the metro, are forced to consider whether to sell or rent somewhere near their workplace.
There’s still a demand, and you’re going to continue to see that demand rise.
What about foreclosures?
According to Market Watch, “ATTOM Data Solutions revealed that lenders repossessed 2,634 U.S. properties through completed foreclosures in February 2022, which is an increase of 70% from last year (though it’s still down 45% from last month).”
And in this article by Forbes, they point out that foreclosures are low thanks to the government stepping in and giving out COVID relief.
It says in the article, “‘The government’s foreclosure moratorium, the mortgage forbearance program, and the mortgage servicing guidelines enacted by the CFPB in August have kept foreclosure starts artificially low over the past year,’ said Rick Sharga, executive vice president at ATTOM company, RealtyTrac, in a press release. ‘While the recovering economy should prevent a huge increase in defaults, we should see a gradual increase in foreclosure activity as these programs expire and servicers exhaust all loan modification options for delinquent borrowers.’”
But I wanted to know how many foreclosures are still there.
According to Forbes, “There are roughly 2.73 million mortgages either in forbearance or past due, according to the Federal Reserve Bank of Philadelphia’s latest report released Jan. 14.”
That’s a massive amount.
Now, what happens if inflation keeps on going up, and our interest rates continue to rise?
What will happen is the market is going to continue to go down.
If inflation goes up and interest rates go astronomically high (9-10%), at this point, can people even afford to buy?
I don’t think they will reach that high, but if they do, we might have a problem. So, we better keep an eye on that.