A Look at the Trends Likely to Affect the 2022 Market
Ilyce Glink and Samuel J. Tamkin
If only we could predict the future, we would have bought Apple stock at the start of the pandemic.
While we can’t expect that degree of certainty, Ilyce had some interesting conversations with real estate experts and industry watchers at the National Association of Real Estate Editors’ recent trending conference. real estate that could make headlines in 2022.
If you’re considering buying, selling, or investing in residential real estate next year, keep these trends in mind:
Trend 1: iBuyers are evolving.
iBuyers are real estate companies that allow consumers to buy and sell essentially on demand. They will buy your home at a price their algorithms deem correct, leaving you free to make a non-contingent or cash offer at will.
But over time, some iBuyers have changed their business model. Knock started out as a traditional iBuyer, but over the past two years has evolved into a mortgage lender. They will give you pre-approval for a mortgage and provide you with a bridge loan for the down payment, so you can buy your new home first. Then they will help you prepare your home and stage it for sale. And, if necessary, they will buy your house if no one else will. Something Knock CEO/Co-Founder Sean Black said has only happened a handful of times.
Of course, just because you call yourself a real estate tech company, also known as “prop-tech,” doesn’t mean you’re always right. Zillow closed its iBuyer division, Zillow Offers, in early November, acknowledging a potential loss of hundreds of millions of dollars, and said it was cutting its workforce by 25%.
Trend 2: Interest rates are rising (this time, for real).
Ever since the Great Recession, mortgage industry watchers and economists have predicted rising interest rates every year. In 2010, 30-year mortgage interest rates were around 4.69%, but fell to around 3% in 2012, according to Rocket Mortgage, and mostly stayed there. In late 2018 and early 2019, mortgage rates hit 5.34% for a brief while.
But they quickly fell and, in January 2020, mortgage rates had returned to around 3.7%. And, then COVID-19 hit, the Federal Reserve Bank cut the federal funds rate to between 0 and 0.25%, and mortgage interest rates fell below 3%.
What happens now? Lawrence Yun, chief economist of the National Association of Realtors and Mike Fratantoni, chief economist of the Mortgage Bankers Association, agree that interest rates should rise. And, Jerome Powell’s recent statement that the Federal Reserve will seek to raise the federal funds rate three times in 2022, while phasing out its bond-buying program, makes a rise in mortgage rates likely.
If omicron (and future variants of COVID-19) don’t require more federal intervention, Yun expects to see 30-year mortgage interest rates of 3.5% in 2022. In the meantime, lenders will lay off more loan officers and staff as refinances decline. They hope that the market for buying mortgages will remain hot.
Trend 3: Millennials and Gen Z homebuyers may find the purchase unaffordable.
If interest rates rise a lot, Millennials and Gen Z homebuyers will find it increasingly unaffordable to buy their first home. And millennials make up the majority of homebuyers right now.
US homes appreciated at an 18% annual rate in October, according to CoreLogic, which was the highest level recorded in the index’s 45-year history. If you were looking to buy a single-family home, these appreciated at a rate of 19.5%, another record high.
This type of growth, after several years of double-digit price appreciation, is unsustainable. Since house prices are closely tied to income, something has to change: either people will have to make more money, interest rates will have to stay low, or house prices will have to fall to bring everything back into balance.
Meanwhile, the United States is short by an estimated 5.24 million homes (rentals, townhouses, condos and single-family homes) and builders are focusing on high-end developments. After all, if you got the same profit out of a million-dollar house as you did from building three or four $250,000 houses, which would you choose?
Contact Ilyce Glink and Samuel J. Tamkin through their website, BestMoneyMoves.com.