Housing Market 2022 Forecast

Is there anything to be thankful for in the housing market 2022 forecast?  Everyone wants to know...so let's take a look!

Welcome to our second REAL ESTATE MARKET UPDATE for November 2021. I’m Erik Braceland with Braceland Homes here in sunny San Diego, California, where we guarantee the sale and/or purchase of your home.  Here on the Braceland Homes channel we cover topics related to buying and selling residential real estate.  

I think most questions people have about real estate right now, concern the housing market 2022 forecast. What I’m going to bring to you today is the data, the expert quotes, and the insights on what’s really happening in the market because as you know, and like I talked about last week, there’s a lot of confusion out there. There are headlines that terrify, not clarify...and people are seeing rising prices, rising rates.  There's talk of the bubble bursting, and all of the concerns around a market crash. What we want to share is the data that shows exactly what’s happening and help you really separate out the noise because it’s the noise and the confusion that’s going to put people on the sidelines and have them wait and say "How long can this keep going? I just don’t see the end." That’s what I'm going to share today with the housing market 2022 forecast. 

I think it really starts with the conversation on mortgage rates, so let’s dive right in and look at this quote from Doug Duncan at Fannie Mae, and it says, “Right now, we forecast mortgage rates to average 3.3 percent in 2022, which though slightly higher than 2020 and 2021, by historical standards, remains extremely low and supportive of mortgage demand and affordability.” So, what does that mean? Well, just like most of the other experts project, we’re seeing a projection for increasing mortgage rates.  We’ve seen that, even over the past few weeks, as mortgage rates have on average, ticked up above 3 percent. So as mortgages rates rise, it will cost more to purchase a home, and that’s exactly what we’ve been talking about with affordability. Mortgage rates, prices and wages are the three levers for affordability.  So, if the mortgage rates are projected to rise, it will cost more.  But the great context here, that I love about this quote, is the piece about the historical standards. If mortgage rates are ticking up a little bit, it will cost more, but they will remain historically low, based on projections, and that will support affordability. So that’s great news for you home buyers, but take advantage of this before mortgage rates rise even higher!

Let’s take a look at what the mortgage rate data looks like. This is data from Freddie Mac and its average mortgage rates going all the way back to 2018. What you can see here is that the mortgage rates were just under 5 percent in 2018 and they’ve dropped pretty significantly since then. We hit that kind of all-time low at the very end of last year, early this year, and they’ve started to tick up again.  So what people want to know is, where are they headed? You can see Freddie Mac is saying mortgage rates are projected to rise as well.  Roughly 3.6 percent by this time next year. And as we averaged out all the projections that we’re looking at from the major players, we see roughly 3.5 percent mortgage rates by this time next year. So as mortgage rates get higher, it becomes more expensive to purchase a home and that’s what we want to help you home buyers understand. If you’re thinking of waiting a year or two, maybe even three, uh...don't.  If you’re ready, and you want to buy a home, then buy now before mortgage rates rise and you end up paying more because of higher home prices...and higher mortgage interest rates.

We also know that mortgage rates aren’t the only thing on the rise for next year; home prices are forecast to appreciate as well. So, what you’re looking at here is the home price forecast for 2022.  And as we look at the six or so major players and industry experts, they’re averaging out to about 5.1 percent home appreciation next year as illustrated here by the orange dashed line. Now what does that mean? Well, we’ve seen and we’ve talked about, over the past year, that home prices have appreciated at a record-breaking level, 18, 19, almost 20 percent appreciation. So next year, the forecast is showing continued appreciation but at a slower or more moderate rate. What's important here is that home prices are expected to continue rising, but at that decelerated rate, which means a slower or more moderate rate of appreciation.  So, definitely not projecting a decline in prices, but a slower rate of appreciation. So, what does that mean? That means that it is going to get more expensive to purchase a home and I want you home buyers to be able to purchase before home prices rise. You may be asking why they are projected to continue appreciating? It’s because inventory is still a big challenge, it’s still a major question. As we look at the supply and demand conversation that we have over and over again, supply is low, demand is high. That’s going to naturally make prices rise. And so, what we see, is that the inventory situation won’t be solved overnight. We’ll still have an inventory challenge next year, but likely softening because builders are coming back to the market and building more homes. We anticipate more sellers will feel less pressure coming out of the pandemic, and may become interested in selling their home.  These home owners could be putting their homes on the market if they’ve held off. There’s a variety of factors, that as more homes come to the market, home price appreciation will ease a bit, but continue to rise because the inventory situation certainly won’t be fixed overnight.  Now, what does this mean for you buyers? Well of course, buy before prices and mortgage rates rise to maintain that affordability.  But what does it mean for you home sellers? It means that home equity will continue rising, and that’s a huge factor. We’ve talked about record-breaking equity over the past year, as well as well as equity continuing to rise as home process rise. So, I want to make sure you homeowners know...if you’re thinking about making that move two or three years down the road, maybe even sometime next year...doing that before prices rise will help you leverage that current equity in your home. Make that move up, or downsize, whatever it is you’re looking to do, while you can still lock in that low rate and take advantage of the current home price appreciation. So, equity is super important for you homeowners to fuel that next move. 

As we think about mortgage rates rising and prices rising, what does that mean for home sales next year? Well home sales are forecast to increase this year and perform well again in 2022. So, what you’re looking at here is the home sale forecast from four major real estate industry entities; Fannie, Freddie, National Association of Realtors and the Mortgage Bankers Association. In 2021 it looks like roughly 6.7 to 6.9 million home sales, so finishing out a very strong year this year, and then next year potentially even exceeding that. The reason this is so powerful is if you look at last year, represented by the dashed yellow line, we sold 6.5 million homes in 2020...and that was record-breaking. So, the housing market is projected to exceed what we did in 2020 again this year, and next year.  This is fantastic news, and this means that we'll see a strong spring market, and I anticipate that the forecast is really going to be strong going forward. So, again it's a great time for you home owners to sell to capitalize on all those valuable equity gains if it’s the right time for a move, and you home buyers want to buy before mortgage rates and prices rise.

Now, I couldn’t say it any better myself, and the reality of it is, we should be giving thanks for another healthy and strong housing market in 2022. This is a quote from the Mortgage Bankers Association, "2022 should be another strong year for the housing market" And that's a great setup for what’s ahead based on what the data is saying, and what the experts are saying. 2022 really does have the potential to be a great year!