Thinking about buying or selling a home on the heels of this past year’s real estate market could make you feel like you’re watching through the window as your plane backs away from the gate.  And this would be reasonable given the dramatic increases home values took in 2021.  But have you really missed the opportunity? 

If you are thinking about selling, did you miss the opportunity to stand by and observe as your realtor managed a bidding war for your home?  And even if you can still take advantage of your home’s increase in value, what about now having to enter the buyer’s arena?  

If you are a potential buyer, you may be wondering if there is any value left in the real estate market.  Or worse yet, what if you buy only to see home values drop? 

As realtors, we want a healthy real estate market, and we must do our due diligence and be as informed as possible about what we can expect in the coming months.  No one has a crystal ball, but here is a summary of our research. 

First, none of the experts are projecting housing depreciation in 2022, and all are saying that home prices will continue to increase but not at the unsustainable pace that they did this past year.  The Fed is expected to start managing inflation, but though interest rates will increase in the coming year, they are not likely to reach the pre-pandemic mark of 4%.  New construction is on the rise, but even without the current supply chain problems with labor and material, new homes would still lag far behind the need developing over the past decade.  So, once again, it appears that we have a good old-fashioned supply and demand issue. 

Home Prices Will Continue to Increase but at Reduced Pace

Here are some examples of what “experts” are saying about home prices in 2022. 

“…the recent unsustainable rate of home price appreciation will slow sharply…home prices will not decline…but they will simply rise at a more sustainable pace.”                                               Brad Hunter of Hunter Housing Economics

“Price growth is expected to move back toward a normal range, but this is on top of the recent high prices…So prices will hit new highs…the pace of growth is going to slow notably.”                             Danielle Hale from Realtor.com. 

No More Record Low-Interest Rates

2021 began with the lowest interest rates on record, 2.65% for a 30-year fixed-rate mortgage.  By April 1, rates reached the 2021 peak average of 3.18% before falling back and lingering around 3% for the rest of the year. 

The Federal Reserve has given several signals that their pandemic monetary policy will end as it works to curb inflation.  That, of course, means interest rates will push higher.  Lawrence Yun, the chief economist of the National Association of Realtors, expects the 30-year fixed mortgage rate to increase to 3.7% by the end of 2022.  For those of us who have circled the sun more than a few times, 3.7% still looks pretty inviting, but it is still almost a full point over its bottom in 2021, and everything is relative. 

Supply-Demand Imbalance Keeps Prices Up

According to the California Association of Realtors (C.A.R.), homes continued to fly off the market in November.  Though the statewide median cost of a house was down 2.0% from October ($782,480 from $798,440), it was still up 11.9% from November 2020 ($698,980).  In Southern California, the year-over-year price gain was 14% at a median cost of $750,000. 

High demand across all of California’s submarkets means low inventory and hot market conditions are not going away soon.  There are just not enough homes to supply buyer demands.  According to C.A.R, the number of for-sale properties continued to fall over this past year by 22.4%.  California is still a Seller’s market.  New Construction can’t keep up, much less catch up, with demand, and every major region saw home prices continuing to increase as buyers compete amid a shortage of homes for sale.

Bottom Line

Yes, it is still a sellers’ market.  While incremental increases in interest rates will likely slow demand a bit in the coming year, there is still value on both sides of a real estate transaction.  Buyers will see the lowest interest rates in the early part of 2022 but can still expect increased competition as the spring selling season approaches.  Sellers may not experience the flood of buyers they might have seen last year but can still expect plenty of buyer competition for their homes.  And because this is a supply and demand thing, nobody needs to worry about prices falling off.  It does seem the early part of the season is when buyers will get their best value before interest rates and competition begin to rise.  It is also the best time for sellers looking to move up or down in their next home.  And it is for sure time to check in with us to make sure you make your next best move.