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Yun on 2022

Yunnie was in town this week, forecasting the safest bets like everyone else:

Is the economy back to normal? It’s the question everyone wants answered as we navigate through a semi-return to normalcy amid the pandemic, and it’s the question Dr. Lawrence Yun, chief economist of the National Association of REALTORS® (NAR), posed as he opened the Residential Economic Issues & Trends Forum at NAR’s annual REALTOR® Conference & Expo, this year held in-person at the San Diego Convention Center in California.

While several market indicators lagged throughout the pandemic, the housing industry was an outlier, experiencing better than average conditions that have been sustained over the course of the last two years. But how long will it continue?

“All markets are seeing strong conditions and home sales are the best they have been in 15 years,” said Yun. “The housing sector’s success will continue, but I don’t expect next year’s performance to exceed this year’s.”

At the moment, home sales are the standout. And although there should be a slowdown going into 2022, said Yun, they will likely remain above pre-pandemic levels. The outcome, however, will largely depend on the influx of inventory, and as mortgages exit the forbearance program, we should begin seeing additional homes enter the market.

“With more housing inventory to hit the market, the intense multiple offers will start to ease,” Yun said. “Home prices will continue to rise but at a slower pace.”

Affordability has been a real challenge these last two years, with low mortgage rates and high buyer demand providing some balance. But now with rates rising as we come out of the pandemic, fears concerning inflation are surfacing.

Yun predicted that mortgage rates will see an increase of 3.7% in the coming months, a rise he attributes to persistent high inflation. Home prices rose by 12% on average in 2020 and 2021, while inflation rose 3%.

“Rising rents will continue to place upward pressures on inflation,” he said. “Nevertheless, real estate is a great hedge against inflation.”

In terms of a bubble for 2022, the signs are just not there. While home prices have outpriced people’s income overall, said Yun, with value growth matching up to 2005 levels, we don’t have an oversupply situation or risky subprime lending like we did during the last market crash.

An area to watch, which fell behind as a direct result of the pandemic, is the jobs market. According to Yun, since the lockdowns were lifted, 18 million jobs have been created, but we are still behind by 4 million jobs compared to pre-COVID levels.

The increased remote work trend could have a long-term impact on jobs and work preferences, affecting how and where people choose to live.

“We are only in the first innings of work-from-home options,” Yun said. “People have not fully digested the work-from-home-flexibility model yet in determining home size and locational choice.”

For more information, please visit www.nar.realtor.

Zillow 2022 Local Pricing Forecast

Zillow has been vilified for many reasons, but the one thing they have going for them is the viewer data for each area. If their 2022 projections are based on the number of clicks on listings, then their forecast should be a reasonable reflection of the actual demand – a macro look that no one else has.

The Big Question: if they are so confident about the 2022 appreciation, why did they quit home flipping?

Their first move of suspending the program until next year while digesting their inventory was understandable. But why quit altogether? I think it was due to having billions invested in a high-overhead venture that was new to them – and the rich guys hit the panic button, instead of calling me.

I’m sticking with my 2022 NSDCC Pricing Guess of +15%, and agree with Zillow that most areas could see +20%.  But this frenzy is going to come to a screeching halt with no notice (they always do), and it will be when you least expect it.

P.S. ALL of their forecasted value increases here are higher than last month:

NW Carlsbad, 92008:

SE Carlsbad, 92009:

NE Carlsbad, 92010:

SW Carlsbad, 92011:

Carmel Valley, 92130:

Del Mar, 92014:

Encinitas, 92024:

La Jolla, 92037:

Rancho Santa Fe, 92067:

Santaluz/Crosby/4S, 92127:

Coastal Oceanside, 92054:

S. Vista, 92081:

University City, 92122:

The additional last four areas show how overwhelming the demand is for all of north county.

NSDCC Market Conditions, 2022

https://www.calculatedriskblog.com/2021/11/2nd-look-at-local-housing-markets-in.html

Our drop in inventory is the most pronounced of any area in the country.

During the previous peaks in pricing, more homeowners would gladly sell for a record price…..and parlay their gains into a bigger home down the street or around the corner.  But that was when you could buy an upgrade for an extra $100,000 or $200,000 – now it takes a million!

What about the long-timers? Those who moved up a couple of times were able to achieve their so-called dream home, and have now become very comfortable.  Even though Prop 9 was intended to encourage the seniors to take their ultra-low property tax basis with them when they downsize, it’s not enough of a benefit to change the trend.

The end result? You need to leave town to make moving worth it. But nobody wants to go!

Of all the towns in America, we probably have it better than anyone….which means we should have the fewest number of people who are willing to leave town.

The logjam in the market is caused by the seniors who are aging in place, instead of downsizing or moving to the retirement home. Those who are over 75 years old are probably staying their current home for the duration.  We need more people who are ages 55-75 to pack it up!

The only hope is that the baby boomers who haven’t saved enough money for retirement are counting on their home equity to get them through. It doesn’t mean they have to move though – they can get a reverse mortgage to tap a decent chunk of their equity – without monthly payments!

But for those NSDCC locals who are willing to leave town in order to liberate their home equity, they will enjoy a hyper-frenzy in 2022.

I don’t think there will be enough of them for us to get back to normal inventory levels.  It could actually get worse in 2022, and inventory go down. Can you imagine a market with less inventory?

Don’t be surprised if we have fewer homes for sale in 2022 – causing the frenzy to blast off:

  1. Virtually every house sells.
  2. Pricing goes ballistic.
  3. Homes are sold differently.

If we do have additional homes come to market, the existing demand will soak them all up.  It will take a flood of inventory to cool off the demand – meaning more than twice the inventory we had this year.

One source of additional inventory might be the retiring realtors who can’t hang with the big dogs, and they turnover their client database to an agent before they leave town.  If you are in that category, let’s talk!

Get Good Help!

MBA Pricing Forecast

This forecast suggests that prices would still be cooking in 1Q22, but once the spring selling season gets rolling, the median prices will level off? It would take a flood of inventory to pull that off.  They blame rising rates, but when that happens it usually causes buyers to hurry up and buy. As long as mortgage rates are in the 3s, we’ll be fine.

It was inevitable that the housing market would slow down a bit. After all, home prices can’t continue to outpace income growth by a 4-to-1 ratio forever, right?

However, even as the market has seen some softening so far, price hikes and bidding wars are still ongoing across the U.S. And the industry consensus is that whatever cooling comes next year, it will slow—but not stop—the continuing rise in home prices.

However, that assessment isn’t shared by the Mortgage Bankers Association, an industry trade group based in Washington, D.C., which recently published its 2022 forecast. While the Mortgage Bankers Association foresees the median price of existing homes posting a 15.3% year-over-year gain to $362,000 in the first quarter of 2022, it sees prices beginning to fall as the year progresses. The group expects the median price of existing homes to end 2022 at $352,000. That would represent a 2.5% year-over-year drop in home prices.

What’s going on? A lot of it boils down to inflation—or what higher inflation means for the market.

The latest reading of the consumer price index in October made it clear that stubbornly high inflation could be around longer than economists were assuming. That has increased the odds that the Federal Reserve will raise interest rates, and thus mortgage rates, as a means of reining in inflation. A rise in mortgage rates—which have dropped to near record lows as the Fed kept money cheap to ease the economic effects of the pandemic—would lock some buyers out of the market altogether and put downward pressure on prices.

The Mortgage Bankers Association is forecasting that the average 30-year fixed mortgage rate will hit 3.7% by the third quarter of 2022, and 4% by the end of 2022. That would be a big increase from the current 3.09% rate, and is well above the 3.4% rate that Fannie Mae projects by the end of 2022.

Link to Article

2022 Forecasts

Let’s gather the forecasts for 2022 – here’s a start:

Forecaster
Existing-Home Sales
Pricing
Fannie Mae – USA
-7.5%
+7.4%
Freddie Mac – USA
+7.0%
MBA – USA
+5.3%
+5.2%
NAHB – USA
-10%
NAR – USA
-3.2%
+2.8%
CAR – Calif
-5.2%
+5.2%
Zillow – SD
+21.3%
CoreLogic – SD
+2.2%
JtR – NSDCC
+5%
+15%

I had guessed that the NSDCC sales would be +10% this year, and +10% in pricing.

The final 2021 numbers should end up around +7% for sales and +28% in median sales price.

Bill mentioned (below) that if inventory stays low, there will be a larger increase in prices.  Conversely, if inventory increases significantly, there will be less price appreciation.

I’m guessing the NSDCC market will enjoy a third option, where the inventory increases just enough to boost the sales AND pricing at the same time.

It is a sweet spot where more inventory doesn’t scare off buyers, and instead soaks up the pent-up demand and provides the comps for a solid 1% to 2% pricing increase per month.

My final guess for 2022: NSDCC will have +5% YoY in sales, and +15% in median sales price.

What do you think? Leave your guess in the comments section!

Click here for the research:

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September Comments

I got a chuckle out of the highlighted comment above, but it feels like it!

NSDCC October listings:

2018: 401

2019: 366

2020: 400

2021: 177

Today’s NSDCC counts:

Actives: 249

Pendings: 248

The 2022 selling season could be disappointing at this pace – and the inventory doesn’t have to pick up.

Frenzy Season, 2022

The NFL added a 17th game this year, and pushed back the Super Bowl to the second weekend of February.

It will be about as long as buyers can wait, and the following weekend should be gang-busters.

If you’re not putting your home on the market in the next 2-3 weeks, then February 19th would be a good target date for listing your home for sale.

“Oh Jim, wouldn’t it be smarter to wait until momentum builds with other comps closing escrow, and then sell in April/May and pick up an extra 5%?”

Sure, if you’re a gambler.

What could go wrong:

  • A couple of neighborhood fixers sell for less.
  • Another sells to an ibuyer based on those prices.
  • Another is getting divorced and quick-sells their house based on those new comps.

If you get submarined by other sales nearby, then you’ll just be happy to get what you could have gotten in February. The worst part will be your spouse telling you repeatedly, “I told you we should have sold sooner”.

Yes, the frenzy will last into 2022, and you will sell for a ton of money no matter what. But I’ve gotten more inquiries this month about selling a home than any month this year – people are preparing to go!

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