While the fourth quarter numbers aren’t out yet, it’s safe to say that 2021 was another great year for the housing market. Interest rates remain near historic lows despite the increased increases last fall. And according to Zillow’s records, the year also saw lower foreclosure rates, and higher home sales.
However, concerns are growing as the country struggles to recover from the COVID-19 pandemic, with new strains of the virus emerging and hampering our economic progress thus far. Supply disruptions and restrictions are expected to continue well into the next year, causing housing prices to continue to rise, and demand not even expected to drop… well, who knows when?
Don’t take it from me, though; Take it from our industry experts from some of the most well-known companies in the game: LoanStream Mortgage, RCN Capital and First American Financial.
Tough year for buyers
With supply continuing to dwindle and demand continuing to rise, or in some places, growing larger, sellers will continue to benefit from the housing craze well into the year ahead.
At first glance, the housing market outlook for 2022 looks familiar – a strong millennial demand for homes held back by the persistent and historical housing shortage. This imbalance between supply and demand led to a record rise in home prices in 2021, and given this dynamic that shows few signs of change, we expect home price hikes to remain high in 2022 .
But, housing prices will need to stabilize eventually, right?
Erica LaCentra, chief marketing officer at RCN Capital, said: “2022 is likely to be a difficult year for buyers. While home prices are not expected to rise next year as quickly as they did in 2021, prices are not expected to fall. About the extremes I reached last year due to limited inventory and intense buyer demand.”
“House prices are likely to start stabilizing to the point where buyers don’t see a rapid rise anymore, so there will at least be a little more consistency,” Lasentra continued. “However, as prices continue to rise and mortgage rates begin to rise, affordability will be a major challenge and buyers will continue to struggle in a highly competitive market.”
Unusually high prices and increased mortgage rates should lead to lower demand, right? With the spread of remote work and relocation, maybe not.
“Appreciation and demand, along with low interest rates, have created an environment in which home prices have increased dramatically over the past years,” said Thomas Shaw, chief marketing and technology officer at LoanStream Mortgage. Besides telecommuting and relocation, more markets have seen a huge demand for housing and an increase in appreciation. Rising rates may put downward pressure on higher house prices, however housing demand may keep the rise steady and prevent the rise from falling.”
Shaw points out that non-conventional loans, especially those not related to quality management, will become more common as interest rates increase and the refinancing business dries up. “Mortgage programs, such as those not related to quality management, will take the opportunity to step in and provide affordable loan programs to larger loan amounts and opportunities for a borrower who may be outside the traditional fund with 1099s, large assets, ITINs, and foreign borrowers,” he said.
After the boom Refi
The Fed has clearly indicated that interest rates will rise in an attempt to control inflation, causing despair to mortgage professionals across the country, but should they?
In the first week of January 2021, the 30-year fixed-rate loan rate was at 2.65%, according to Freddie Mac data. By the end of November 2021, rates were coming in at 3.10%, marking a 0.12% increase over the previous week. By the end of 2022, Redfin and Realtor.com expect mortgage rates to be around 3.6% for a 20-year fixed rate, “which ends up being significant in the long run for the average homeowner,” LaCentra said.
However, using the same facts, Kochi paints a more optimistic view, saying: “While mortgage rates are expected to rise in 2022, consensus still places it below 4 percent, which is very low from a historical perspective. Continued wage growth will help It helps to boost family incomes and increase the purchasing power of homes. In addition, delinking workers from the office gives first-time homebuyers more opportunity to relocate to less expensive areas.”
On the other hand, Shaw reminds us that these rate increases are just estimates, although mortgage professionals should prepare to diversify their loan portfolio. “It is likely that we will see mortgage rates continue to rise in anticipation of these changes driven by the capital markets outlook for MBS sales,” he said. “Mortgage professionals can no longer search for refinancing opportunities out of thin air, they will need to be analysts of their clients’ problems and non-QM professionals should be part of their solution suite.”
The same goes for real estate investors who are looking to purchase real estate over the next year. “For investors interested in single-family rentals, 2022 will be all about diversification,” Lasentra said. “Due to the volatility of prices, investors will want to make sure that whatever they are buying can be secured and they are certain that it is a good long-term decision.”
“As we have already seen over the past year or so, it would be better for investors to exit the major markets and focus on single-family properties in more suburban areas. Cities like Youngstown, OH, Springhill, FL, Birmingham, AL, Cleveland, OH, and Pueblo are And CO and Buffalo in New York are prime examples of cities that should be high on the list for rental investors. With moderately low home prices, high appreciation rates, and low rental vacancy rates, these are the ideal places to purchase a property that will build long-term wealth.”
Although diversification and adoption of lack of quality management appears to be the only solution to this problem, it is not. When a business starts to dwindle, whether it’s due to market conditions or financing, it’s time for mortgage professionals to get smart.
“The higher loan amounts of government and conventional loans can be a huge asset in that they now provide better opportunities for borrowers to access GSE programs without having to go to specialized programs like Jumbo or Non-QM,” Shaw said. “These are now opening up new markets and clients for mortgage professionals to examine and market for refinancing, cash out and purchase options.
Touching cash withdrawals, Shaw continued, “Mortgage professionals and marketers will need to re-evaluate models to cash out, and monitor their data frequently. As expanded market segments become available with higher loan limits, higher value may have downward pressure. Setting expectations and knowing your markets will be important “.
Will the demand continue to increase?
The pandemic’s redistribution is expected to continue, according to our experts, although some believe immigration areas will change as previously popular southern metro areas become more expensive.
A recent report by Redfin showed how some of these more affordable southern metro areas are becoming more expensive as towers move out of the towers. Moving out of the towers to Austin usually pays more homes to locals ($23,000 on average), indicating that sellers took even greater profits when wealthy (and now remote workers) moved from San Francisco and New York to the city.
As a result, Redfin chief economist Daryl Fairweather predicts that rising home prices along the Sunbelt will eventually lead to buyers moving to more affordable (rural) northern cities like Indianapolis, Indiana, Columbus, Ohio and Harrisburg, Pennsylvania.
“Research shows that even before the pandemic, there was a transition from larger metros to smaller ones, and from urban centers to suburbs and suburbs,” Kochi said. “Migration to metro areas and smaller suburbs is likely to continue due to the lifestyle choices of millennials as they continue to age in home ownership and the pandemic-induced acceleration of undoing workers from offices.”
“According to the First-Time Homebuyer Outlook Report for the Third Quarter, cities like Buffalo, Pittsburgh, or Oklahoma City offer first-time homebuyers the most opportunity for homeownership because the average rental home buying power in these cities allows first-time homebuyers to consider a larger group Plenty of homes to buy,” Kochi continued. “You cannot buy what is not for sale in your market, but you can change its place.”
Kochi also acknowledges the struggle first-time millennial buyers will face as the new year approaches, saying, “As they continue to advance their home buying years in 2022, they will face a market with rapidly rising home prices, limited inventory, especially in the lower price bracket, and foreclosure rates.” Even worse, first-time homebuyers don’t have the equity from selling an existing home to bring it to the closing table.While fundamentals support continued demand for first-time homebuyers in 2022, these buyers will face an uphill battle if housing supply remains near the lowest its historical levels. You cannot buy what is not for sale.”
From the investors side, LaCentra advises that southern cities are still full of opportunity, especially for those looking to build long-term wealth. “For investors looking to make money by addressing inventory issues and building new homes, southern cities like Tampa and St. Petersburg, Florida, Dallas, Fort in Worth, Austin, Texas, Atlanta, Georgia, and Raleigh, NC are ripe with development opportunities. There is a huge demand for homes in these areas of the country and it is still possible compared to other parts of the country to be able to build and make a huge profit even with the supply chain problems that builders are facing.”