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.
With the supply and demand so out of balance on the lower-end, it’s incredible to see that the high-end is out-performing with faster appreciation. It looks like big money is throwing its weight around!
Note this guy’s negativity in the second paragraph.
I guarantee you that he is going to be wrong, wrong, wrong.
The association is predicting that home sales in California will drop next year, but has a typical guess for the statewide median sales price – expecting a 5.2% rise in 2022:
Their predictions for this year were terrible – they thought pricing would go nearly flat in 2021 (in red box), and instead we had the biggest gain ever (p is projected):
These were my guesses for this year:
MY 2021 PREDICTIONS:
We will have 10% more NSDCC listings than we had in 2020.
We will have 10% more sales.
We will have a 10% increase in the NSDCC median sales price.
Here’s how this year looks through the first three quarters of 2021:
# of Listings (%YoY)
# of Sales (%YoY)
Median Sales Price (%YoY)
NSDCC inventory DROPPED 16%, yet sales ROSE 15% this year! Pricing is +32%!
A graph showing how more people need to leave town to make it worth moving:
A CAR consumer survey showed, for example, that 35% of home sellers are moving out of state and fewer than 15% were moving to a home in the same county as their last residence. “I think that pressure to migrate out of the state is going to be just as strong, if not stronger, as housing, affordability gets worse,” CAR Chief Economist Jordan Levine said. “I think that this is a housing-driven phenomenon, and we don’t have a lot of relief in terms of housing affordability.”
Speaking of Zillow, they also said in this June article that San Diego home prices would rise 24.7% by May.
How are we doing?
There has never been a great measuring stick for home prices, but let’s look at the most common ones:
Yikes – it looks like home prices have been fairly flat over the last 2-3 months, at least according to the standard ways of measuring. Pricing doesn’t have to rise 2% every month to get to their 24.7%, but having upward momentum is critical because once we roll into Plateau City, it gets harder to convince buyers to overpay. They are already cooling their jets:
Home buyers don’t have much – if any – control over the process, which leads to frustration and disappointment. They don’t have any way to cause more homes to list for sale, and the only way to eliminate the competition is to out-bid them, which can be even more harrowing.
One solution is for buyers to expand their parameters, but that’s not easy and can lead to another ailment that a client described yesterday as “frozen in indecision”.
Just when you want to give up……it looks like others might have beaten you to it!
Showings throughout the state are lower than they were during the first week of January!
It’s been mentioned that not every agent uses this service, but it is such a large sample size that the trend should be a decent indicator of buyer sentiment – they’re exhausted.
Sure, active listings are half of what they were at this time last year, but the showings are 260% different!
Just like with selling, when is the best time to be a buyer? When no one else is!
We already know what’s going to happen with sales in 2022 – they will be the same as this year, with a possible adjustment of +/- 10%.
But the rest of 2021 could get wacky!
It looks like the competition is dwindling, and any seller who comes to market around the holidays has to be motivated! Buyers – stay in the hunt!
The YoY change in the San Diego Case-Shiller Index in June was 31% higher than the national 10-city index. If we apply the same 31% to next year’s national forecast of roughly +5%, the San Diego home-appreciation rate in 2022 should be around 6.55% – though, if you ask me, it will more likely be 2x the national rate.
Most forecasts call for home price appreciation to moderate in 2022.
The Home Price Expectation Survey, a survey of over 100 economists, investment strategists, and housing market analysts, calls for a 5.12% appreciation level next year. Here are the 2022 home appreciation forecasts from the four other major entities:
Price appreciation is expected to slow in 2022 when compared to the record highs of 2021. However, it is still expected to be greater than the annual average of 4.1% over the last 25 years.
From Freddie Mac:
High house price growth has been supported by increased demand due to low mortgage rates, disposable after-tax income that has risen during the current recession and a major shortage of housing supply relative to our population. The increase in house price growth will be less transitory than the increase in consumer prices, as the U.S. housing market will continue to struggle with a shortage of available housing for many months to come. But, we do forecast house price growth to moderate in 2022, with full year house price growth of 12.1% in 2021 followed by 5.3% in 2022.
The rapid run up in house prices may be starting to exhaust potential homebuyers.
We’ve seen indications of softening demand in recent home purchase mortgage applications data. And, while sales metrics remain above pre-pandemic levels, the pace of sales has cooled since the first quarter of this year with home sales slowing for the past four consecutive months. That’s reflected in our home sales forecast, which has total home sales declining to 6.9 million in 2021 and 2022 after reaching a seasonally adjusted annual rate of 7.6 million and 7.2 million in the fourth quarter of 2020 and first quarter of 2021, respectively.