By Morf Morford
Tacoma Daily Index
Perhaps like the economy as a whole, the housing market is tilting, or even moving, in two very different directions at the same time.
The almost frenzied auction wars for residential homes have cooled considerably.
The frenetic pace of real estate prices has slowed down, if not diminished at least in some regions.
For buyers, sellers, agents, and just about everyone, the question is, will house prices go down in 2022? Or will the upward trend continue?
I think we know one thing for sure; the upward direction in prices we saw in 2021 will not continue – at least at this rate.
Here are some views from the upper floors.
The research team of Freddie Mac (the government-sponsored company that buys mortgages from lenders and sells them to investors) predicted that U.S. home prices will rise more slowly in 2022 compared to this year and last year.
According to their estimate, home values nationwide rose 11.3% in 2020. They forecast a 6.6% gain for 2021. Looking ahead, the group has predicted that home prices in United States would increase by 4.4% in 2022.
A recent Reuters poll of 40 housing analysts suggested that home values in the United States would increase more slowly in 2022. Analysts polled estimated that values would rise 10.6% in 2021, followed by a gain of 5.6% in 2022.
According to the Reuters report: “Beyond this year, house prices in the United States are expected to experience moderate and average growth of 5.6% next year and 4.0% in 2023.”
What drives prices up?
The main reason is related to inventory levels.
If there is anything that defines the dynamism of a local economy, it is the demand for housing.
In general, the housing supply in the United States remains well below normal levels. This has been the case for several years.
Inventory conditions were tight before the pandemic, and they have only tightened due to an unexpected increase in home sales and a related drop in available labor – not to mention the problems supply with everything from appliances to delivery trucks.
In some of the hottest markets (like Austin, Texas, Boise, Idaho and parts of the greater Puget Sound area) housing market supply levels are lower than they have ever been before . This comes at a time when demand from buyers remains strong across the country.
You don’t have to be an economist to connect the dots here. In every city in the United States, record levels of inventory and strong demand have pushed home prices up at a steady pace.
Local, if not national, construction rates have also increased dramatically.
“Affordability” has become an almost mythical unicorn for many buyers, so many are waiting or resigning themselves to renting (or something like that).
In other words, deferring the purchase of a home is the hot new trend for many potential buyers.
Overall, home values are expected to continue to climb over the last few months of 2021 and, at least partially, through 2022.
But, if you’ve been through Seattle recently (or almost anywhere), you can’t help but notice massive construction projects – some recently completed, which will somehow have an impact. in the housing market.
Yes, these projects take years to move from planning to occupancy; for many of them it has been years. And a lot of them are huge.
Several hundred or even a thousand apartment buildings in a given community must have an impact on the supply / demand equation.
COVID and its aftermath, labor and supply issues at border closures (and of course gyrating lumber prices of the past six months or so) are still rocking real estate markets.
More housing, and more housing options, must at least slow the momentum of higher prices.
Or at least guard against the shock of price inflation / real estate stamps, north of the border… .. https://www.financialsamurai.com/what-if-the-us-housing-market-turned- into-the-canadian-housing-market /
According to the National Association of Realtors in June 2021, “the median selling price of existing homes increased at a 23.4% year-over-year rate,” which is “the second highest level recorded since January 1999”.
And, like our local market, homes across the country typically sell out in 17 days. Or less.
The national inventory was only 2.6 months (a healthy and balanced market is about six months).
Unethical lending and excessively low interest rates paved the way for the 2008 financial crisis. After that, banks and builders were reluctant towards new construction.
From 2000 to 2007, there were at least 1 million housing starts each year and at least 2 million between 2004 and 2007. After the crash, the number of housing starts reached 500,000 and only fell to one million. than in 2020. This, along with a growing population of home buyers, has created an intractable housing shortage across the United States.
The problem becomes more evident when you look at the future demand for housing and compare it to what is likely to be available. For example, Nerd Wallet conducted an investigation which found that: “28 million Americans say they plan to buy a home in the next 12 months, and about 26 million hope to become first-time home buyers in the next five years. “
But, home price appreciation must slow simply because housing is becoming unaffordable for many Americans, even despite record interest rates and high loan-to-value ratios offered by the FHA and many banks.
Home hunters are increasingly excluded from the real estate market, with homeownership now out of reach for most people (especially first-time buyers) in more than 4 out of 10 counties in the United States,
The number of counties where homeownership is now considered unaffordable has jumped about 20% from last year.
In short, there are multiple variables and the real estate market is pushed, pulled and reversed from more sides than most of us imagined possible.
Can market demand remain high? Probably not.
Can prices continue to rise? Probably not.
Are the prices going to drop soon? Probably not.
Is it a good time to buy? Probably not.
Just remember, no matter what happens, you heard it here first.