Housing Market Update - February 2022
Prices Are Expected to Rise (But More Slowly)
Home prices rose 18.5 percent nationwide in 2021, according to CoreLogic, a data and analytics company. The rate of appreciation is expected to taper off somewhat in 2022, although to what extent depends on who's talking.
Zillow recently bumped up its home price appreciation forecast for 2022 from 11 percent to 16.5 percent. Fannie Mae has a more moderate expectation of 7.6 percent, and just two weeks ago CoreLogic predicted a home price increase of only 3.5 percent.
Either way, it seems likely that supply will improve due to new construction reaching the market, while demand may take a hit when interest rates are raised.
Interest Rates Will Go Up
After years of historically low interest rates, the Federal Reserve made it clear in January that we'll see some increases in 2022. The first rate hike is expected to be announced at the Federal Reserve meeting on March 15.
Going by the language used at the January meeting, it will be just one of several increases this year. Lenders are already responding to the new climate, with mortgage rates rising from the low 3-percent range to around 4 percent over the last month.
Did you know?
The 30-year fixed mortgage rate we know and love in the United States is virtually unheard of in other countries. The rest of the world deals primarily in shorter term home loans and rates that can only be fixed for three to ten years. (France is a notable exception.)
Investor Demand Could Decrease
Extremely low interest rates over the past few years have made real estate especially attractive to investors, but they may become less of a presence in 2022 as rate hikes come into effect.
If so, this could make life easier for traditional home buyers who have been facing strong competition for a small supply of homes.
Institutional Investing Will Affect Some Markets
You may have read news articles about institutional investors buying up large numbers of homes in a specific neighborhood or zip code, often to use as rentals.
Institutional home buying has become a growing force (and a headache for traditional home buyers trying to compete) in some areas of the country - typically in mid-range suburbs of large cities where there's prime rental demand from a commuter base that's not yet ready or able to purchase a home.
More "Second Homes" Will Be First Homes
Skyrocketing home prices in many metropolitan areas have caused some would-be homeowners to buy their first home in an affordable rural area while continuing to rent and live in the city.
(In some cases, the full price of a rural home is less than the down payment on an in-city purchase.)
Tip: Mortgage interest and taxes can often be deducted on a first or second home that qualifies as a personal residence, even if it's only occupied for part of the year.
Rents Are Expected to Go Up
Rents went up 13.5 percent nationwide in 2021, according to Multi-Family News. Fannie Mae expects them to rise another 3.6 percent in 2022, while Realtor.com predicts an increase of 7.1 percent.
Which States Had the Best Price Appreciation?
Arizona took the crown from Idaho last year, with a stunning home price appreciation rate of 28.4 percent, according to CoreLogic. Florida was next at 27.1 percent, followed by Utah at 25.2 percent. Tennessee and Nevada followed at 24.4 percent and 18.5 percent, respectively.
No state showed a home price decrease in 2021. The lowest price appreciation was in the District of Columbia, where home prices rose 3.7 percent. The second lowest was in New York, followed by Alaska and North Dakota.
The top cities with annual gains in November were Phoenix (30.2 percent), Las Vegas (24.4 percent), and San Diego (22.4 percent), according to CoreLogic.
A Reminder About the Headlines
Housing Sale News Often Reflects a Past Market
News articles talk about real estate statistics as though they're a reflection of the current market, but most home sale data are based on closings that occurred at least a month or two previously. Because it takes around 30 days for a home to close, the buyer decisions that affected the closing prices happened even earlier (at the time the offers were made).
For example: Home closings in January reflect buyer decisions that were made during the December winter and holiday market. That sale data may not even hit the news until February or March.
"Home Sales Are Down" Does Not Always Mean a Weaker Market
The phrase "Home sales are down" is often stated in a way that implies a softening housing market, but it's a measure of sales volume that can mean exactly the opposite.
If the limiting factor is supply rather than demand, the market may be heating up, not cooling down. This is especially likely when market times are getting shorter.
No One Knows for Sure What Will Happen :)
The varying price forecasts for 2022 are a great example of the fact that even top experts can have widely different opinions.
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