This guy has been drunk on the doom juice for so long that he must never get out of his bunker!
If he did, he would see the overwhelming demand for every new listing, even though underwriting standards are strict and rates are going up. Of the 140 NSDCC sales last month, 36% were all-cash.
The Super Bowl is complete, and the spring selling season begins today!
Judging by the quick jump in the total number of pendings, homebuyers aren’t waiting around. Mortgage rates have risen faster than any time in the last dozen years, and the number of homes for sale is scary low:
There was heavy activity over the weekend, and on the hot buys, the offers seemed to be starting at 10% over the list prices – which is now the new normal. Waiving contingencies and giving sellers free rentbacks for 60 days will be part of the landscape for the next few months.
Will rising rates cool off the market? Only for those who are on the fringes and sensitive to payment shock. The affluent – the buyers who are controlling the market – are less impacted, and a measly 1% rise in your loan rate only changes the payment by $1,116 per month on a $2,000,000 mortgage.
How long will the 2022 frenzy last?
It should stay hot until one of the following happens:
Mortgage rates hit 5%
A flood of inventory
Mid-summer
By summertime, the pool of highly-motivated buyers should be diminishing, and we’ll be left with those who haven’t been willing to pay these prices. Remember that when you see another crazy-high sales price, there was only one buyer who was willing to pay that much – the rest all wanted to pay less!
Homebuyers got crushed last year as home prices soared at their highest clip on record. Housing economists saw that price growth—which peaked at a year-over-year rate of 20% last year—as simply unsustainable.
But over the past few weeks, that consensus is no longer so unified. Now, more industry insiders are throwing out their previous forecasts and replacing them with more bullish short-term outlooks. Indeed, some experts say the 2022 spring housing market might go down as one of the most competitive on record.
Why is Zillow raising its 2022 home price growth forecast? A lot of it boils down to housing inventory. During the pandemic, inventory plunged to a four-decade low as more buyers rushed into the market. That trend was predicted to reverse late last year as forbearance protection programs lapsed and mortgage rates rose. But not only has that not happened, the inventory situation has gotten worse. In January, there were just over 923,000 U.S. homes listed for sale on Zillow. That’s down 40.5% from the pre-pandemic level in January 2020, and down 19.5% from January 2021.
Simply put: The housing market is tighter right now than it was last year when bidding wars climbed to an all-time high. That explains why Zillow foresees a rough few months ahead for home shoppers.
Homebuyers and sellers alike would be wise to take Zillow’s 16.4% price growth prediction—or any other real estate forecast model—with a grain of salt. After all, none of the major real estate forecast models predicted the historic home price boom we’ve seen over the past two years. Indeed, when the pandemic struck in spring 2020, Zillow and CoreLogic both predicted home prices would fall by spring 2021.
Casual observers might think this graph is saying that home prices will drop, but instead it is just the YoY change that is moderating. The MoM changes will become more interesting than the YoY changes over the next 12 months.
Home prices averaged year-over-year gains of 15 percent over the 12 months of 2021 compared to an average gain of 6.0 percent in 2020. CoreLogic’s Home Price Index (HPI) ended the year up 18.5 percent compared to the prior December. Despite indications earlier in the year that price gains were beginning to decelerate, they rose 1.3 percent in December, identical to the monthly gains reported in each of the previous three months. The annual growth is up from 18 percent in September and October.
CoreLogic says, “Consumer desire for homeownership against persistently low supply of for-sale homes created one of the hottest housing markets in decades in 2021 – and spurred record-breaking home price growth. Home price growth in 2021 started off at 10 percent in the first quarter, steadily increasing and ending the year with an increase of 18 percent for the fourth quarter.”
CoreLogic’s price forecast for this year anticipates that appreciation will exceed 10 percent for the first months of the year but will fall steadily to 3.5 percent by December 2022. The annual increases will average 9.6 percent.
The company dismisses questions about whether the nation is currently in a housing bubble. The report says its Market Risk Indicators suggest only a small probability of a nationwide price decline, pointing instead to the larger likelihood that falling prices will be limited to specific, at-risk markets. Those locations with a high probability, over 70 percent, include Prescott and Lake Havasu City-Kingman, Arizona; Merced, California; and Worcester, MA.
“Much of what we’ve seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures,” said Dr. Frank Nothaft, chief economist at CoreLogic. “As we move further into 2022, economic factors – such as new home building and a rise in mortgage rates – are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021.”
Prices of detached residential properties posted an annual increase of 19.7 percent in December. This was 5.5 percent higher than the appreciation of attached properties at 14.2 percent.
The state with the greatest increase continues to be Arizona at 28.4 percent, It is followed by Florida at 27.1 percent and Utah at 25.2 percent. Two Florida cities, Naples, and Punta Gorda, posted the largest gains among metro areas at 37.6 and 35.7 percent, respectively.
This is how Plateau City looks on paper when the YoY change nears zero in 2024-25 (above). From Fannie Mae – which, like most forecasts, is guessing that price increases will slow to about half of what they were last year:
When it comes to housing, the report says, “The past year’s demand surge was driven by a combination of factors, low mortgage rates, down payments supported by stimulus checks and other savings, and a pandemic-driven reshuffling of preferences and move timing on the part of many households, all of which are expected to wane. Furthermore, the recent rapid house price appreciation and rising mortgage rates will lead to growing affordability constraints, dragging on home sales, but also likely limiting further price appreciation to a more sustainable pace.”
The economists don’t expect a soft year for home sales, existing sales will slow by only 3.2 percent this year, to the second fastest annual pace since 2006. But they do expect extremely limited inventories to produce “hypercompetitive bidding wars” in which potential homebuyers are priced out of the market.
Rapid price growth will eclipse wage gains and waning stimulus checks and built-up savings, will make it increasingly difficult for many potential buyers. Mortgage-backed security issuance data continues to show the average back-end debt-to-income (DTI) ratios of borrowers increasing, indicating growing affordability pressures. There appears to be ample prospective homebuyers currently, but their volume will likely lessen as the year unfolds.
Changes to the sales forecast are minimal. Total home sales are expected to fall 1.2 percent, an improvement from last month’s -1.4 percent forecast. The 2023 slowdown has been revised from -3.8 percent to -3.6 percent.
Worsening affordability is still expected to dampen home price growth, but Fannie Mae expects prices growth to slow to 7.6 percent from the probable 17.3 percent in 2021. This is still considerably higher than the average pace of 5.4 from 2012 to 2019. Price growth will slow further to 3.3 percent in 2023. The current estimates are higher than the December forecasts of 7.4 and 2.9 percent.
The Zillow 1-Year Forecasted Values are down 1-2 points from their previous guesses last month, but still very strong. This is their third consecutive month with similar forecasts:
NW Carlsbad, 92008:
SE Carlsbad, 92009:
NE Carlsbad, 92010:
SW Carlsbad, 92011:
Carmel Valley, 92130:
Del Mar, 92014:
Encinitas, 92024:
La Jolla:
Rancho Santa Fe, 92067:
For those who are steeped in real estate history, it’s hard to comprehend how prices could increase 25% to 30% this year – to think pricing could go up ANOTHER 20% next year is straining the brain!
I think it will happen, and be accomplished by mid-summer.
Brian and Yunnie got together for a preview of 2022. Yun touted his usual vagueness and Brian touched on a sensitive subject that long-time blog reader Chris and I discussed yesterday.
The shuffle of older agents leaving the business and being replaced by new-age realtors who only know automated order-taking will make the end of the frenzy somewhat predictable. Because the agents who have gotten into the business over the last 12 years have never experienced a ‘downturn’, it won’t be detected by most until the market has softened considerably. Agents will carry on, and the last thing sellers will do is lower their price enough to sell. Plateau City should arrive by next summer, where sellers and listing agents unwittingly let listings sit for months while waiting for someone to bail them out. Sales drop, and prices stay about the same. It will be excruciating.
“People rushed to buy homes during the pandemic, so two straight years of spectacular performance,” Yun said, pointing to a 7% increase in home sales from 2020 to 2021—from 5.7 million to 6 million, respectively.
While home sales have shined over the past two years since the start of the pandemic, Yun said 2022 is poised to be slightly different.
“I think the sales activity will be shaved modestly,” Yun said, suggesting a 2% reduction in sales next year as mortgage rates increase.
A silver lining on the horizon will be improvements in inventory, with the industry “turning the corner” on the dire shortage of housing supply for sale, according to Yun.
“New construction of single-family homes has been moving steadily higher,” he said, indicating that the market may see more inventory in the spring market next year than in 2021.
Yun also indicated that more people are likely to list their homes now that federal support and mortgage forbearance programs are either ended or are slated to end next year.
Even with a much-needed injection of inventory, Yun noted that agents should prepare for the rising mortgage rates to push activity forward next year as buyers try to secure the lowest rates possible before they climb to 3.7% by the end of 2022.
Buffini’s general advice to agents was to focus on the fundamentals and take advantage of the upcoming business in the winter and summer.
“I know people are working as hard as they can, but there is an old phrase that even a turkey can fly in a hurricane,” Buffini said. “When the wind starts to slow down, if you’re a turkey up at 200 feet, you’re going to be Thanksgiving dinner.
“There are going to be a bunch of people getting out of the business, and we are going to be left with even less experience in the industry,” he concluded.
The folks at realtor.com think the San Diego-Carlsbad market will appreciate 4.8% next year. We’ll do that much in the first quarter! They expect inventory to rebound, and our sales to increase 0.2%.
The run on home prices is almost over.
At least that’s what economists at Realtor.com are projecting.
That would mark a substantial slowdown from the S&P CoreLogic Case-Shiller index’s latest reading of year-over-year U.S. home price growth (up 19.5% between September 2020 and the same month this year). If Realtor.com’s projection comes to fruition, it would also be the slowest 12-month rate of price growth since 2012.
No, this wouldn’t be a housing correction or crash. However, slower price growth would provide buyers a bit of breathing room. Less bidding. More time to search for homes. And maybe even a chance for some buyers to finally save up for a down payment.
“After years of declining, the inventory of homes for sale is finally expected to rebound from all-time lows…Homebuyers will have a better chance to find a home in 2022, but fierce competition and affordability continue to be a challenge,” wrote Realtor.com researchers in their outlook.
Their survey indicated that more people are planning to sell, so that’s good – though our coastal region is dominated by baby boomers, so we might not be as lucky as others:
Real estate has been challenging for many buyers this year, with home prices up sharply and inventory at record low levels. Some buyers may get a break in 2022, but it’s not likely to be in some of the nation’s smaller cities that have seen strong housing demand due to remote work during the pandemic.
The cities that are likely to see the strongest price increases and home sales are described as second-tier cities that offer better affordability and more space compared with the nation’s largest cities, according to a new forecast from Realtor.com. It based its forecasts on recent home sales as well as economic trends, such as unemployment and household growth.
Boise, Idaho, is again likely to be near the forefront in 2022, Realtor.com predicted. That comes after local property prices surged more than 30% in the third quarter, and Boise was named the least affordable housing market in the U.S. — with the city’s median home price jumping to almost $535,000, or 10 times the city’s median income.
Boise is attracting people who want to relocate from expensive tech hubs like San Francisco, people for whom those prices may seem like a deal compared with pricing in bigger cities. And that trend is likely to continue in 2022, said Realtor.com chief economist Danielle Hale.
“2021 was an ultracompetitive year for the real estate market, especially for smaller secondary tech markets. They benefited from knowledge workers being freed up from going into the office every day,” Hale noted. Next year will be “in many ways a continuation of what we saw this year.”
She added, “People are embracing the flexibility of the workplace and moving into areas that are more affordable.”
Most of the top 10 markets for 2022 have a “small-town kind of quality of life, yet they still have thriving local economies,” Hale noted.
Average home prices in the top 10 real estate markets are expected to jump 7.4% next year, or more than twice the national pace of 2.9%, Realtor.com said. Buyers may get a break next year with more inventory entering the market, relieving some of the low-stock issues that hampered home purchasers in 2021, Hale noted.
Many big cities like New York and Los Angeles are forecast to see price appreciations but may not match some of the smaller cities, according to the forecast. Prices in the New York metropolitan region, for example, are predicted to rise 2.3% in 2022, while home prices in the Los Angeles are likely to rise 4.8%, Realtor.com said.
Below are the top 10 markets for 2022, based on estimates from Realtor.com. Forecasts include the change in number of homes sold as well as prices for 2022 versus 2021.
1. Salt Lake City, Utah
Predicted sales change: 15.2%
Predicted price change: 8.5%
2021 median home price: $564,062
2. Boise City, Idaho
Sales change: 12.9%
Price change: 7.9%
2021 median home price: $503,959
3. Spokane-Spokane Valley, Washington
Sales change: 12.8%
Price change: 7.7%
2021 median home price: $419,803
4. Indianapolis-Carmel-Anderson, Indiana
Sales change: 14.8%
Price change: 5.5%
2021 median home price: $272,401
5. Columbus, Ohio
Sales change: 13.7%
Price change: 6.3%
2021 median home price: $298,523
6. Providence-Warwick, Rhode Island-Massachusetts
Sales change: 8.1%
Price change: 9.5%
2021 median home price: $419,813
7. Greenville-Anderson-Mauldin, South Carolina
Sales change: 11.4%
Price change: 5.7%
2021 median home price: $305,078
8. Seattle-Tacoma-Bellevue, Washington
Sales change: 9.6%
Price change: 7.5%
2021 median home price: $666,754
9. Worcester, Mass.-Connecticut
Sales change: 8.4%
Price change: 8.2%
2021 median home price: $397,188
10. Tampa-St. Petersburg-Clearwater, Florida
Sales change: 9.6%
Price change: 6.8%
2021 median home price: $335,814
Article includes a 2:30-min video of Boise market conditions:
More ivory-tower musings here, and it’s hard to believe that they could be so blind.
How can analysts read these statistics and decide that the frenzy will come to a complete halt, which is what a 2.5% YoY gain will feel like if it were to happen? Because of a break for the holidays?
That’s the best you got?
Predicting that there will be additional inventory for-sale when it’s been plummeting everywhere is naïve too.
At least their headline writer got it right:
‘Lower Appreciation Not Yet Reflected in Gains’
While it is clear that the growth of home prices has started to slow, reports on the results of the deceleration are diverging. Earlier this week Black Knight reported its Home Price Index (HPI) was up 0.6 percent in October, today CoreLogic puts the gain at 1.3 percent.
The CoreLogic report says its reported October appreciation is a full 1 percentage point lower than the peak posted for April. The annual rate of increase in the HPI for the October was 18 percent, identical to the 12-month growth it reported for September, and the highest recorded in the 45-year history of the index. Incidentally, in April the annual increase was 13 percent, showing the rapid run-up of prices over the summer and early fall.
Detached properties(i.e., single-family residences) continue to appreciate at a much higher rate (19.5 percent, also a record high) than attached properties at 12.9 percent. This also differs substantially from the 11 percent gain for single family homes reported by Black Knight which also reported that condo prices are now rising faster than those for single-family houses.
Price gains remain strongest in the Mountain West, with Arizona and Idaho again topping the charts with growth of 28.8 percent and 28.7 percent, respectively. Utah was third at 24.5 percent. Twin Falls, Idaho had the fastest growth among metros at 35.8 percent, but the South did weigh in. Naples, Florida was second at 33.5 percent.
Despite affordability challenges, a recent CoreLogic consumer survey shows that over half of respondents across every age cohort said that owning a home has always been a goal of theirs – further supporting the outlook that consumer desire for homeownership remains.
“New household formation, investor purchases and pandemic-related factors driving demand for the limited supply of available for-sale homes continues to propel the upward spiral of U.S. home prices,” said Frank Martell, president and CEO of CoreLogic. “However, we expect home price growth to moderate over the near term as many buyers take a break for the holidays.”
CoreLogic’s forward looking HPI projects that slowdown to result in a year-over-year increase of only 2.5 percent by next October “as affordability and economic concerns deter some potential buyers and additional for-sale inventory becomes available.”
