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The National Association of Realtors just released their 2022 housing market report.  What are their predictions on mortgage rates, appreciation rates, rental rates, and location of purchases?  There are a couple of surprises in the data that could radically alter their predictions.

A little disclaimer on the source of the data?

Before getting into the details about the realtor predictions, it is important to note that the authors of the report/research are not totally unbiased.  The realtor’s association represents realtors, so they are a bit optimistic on their predictions as their members make money on the buying and selling of real estate.  I have yet to see a report where the realtors come out and predict a crash as this would not go over well with members.  Long and short, I take these predictions with a grain of salt.

What were the key highlights in the 2022 Realtor association housing market trends?

  1. Price appreciation: nationally up 2.9% with Salt Lake city the leader with a 15% predicted appreciation; Denver 6%, Atlanta 10%, Ft Meyers leads the drop with 5.6% loss in value
  2. Continued flight to suburbs: 20% of all sellers no longer need to live near the office and will continue flocking to the suburbs
  3. Interest rates: end the year at 3.6%
  4. Rental rates: increasing to 7%/year
  5. Housing starts: up 5%

Where do I differ with the realtor association predictions?

  1. Interest rates: Here is what the realtor association predicted: “ As we move toward the end of 2021 and the economy continues expanding, the Federal Reserve is likely to take stock of data over the next months as it slowly pulls back on liquidity. The bank mentioned that it is not likely to resort to rate hikes in the near future. However, markets are keeping a close eye on inflation as we move into 2022, and persistent price gains could prompt sooner Fed action.” Unfortunately, I think they missed the mark on this one, the bond market is pricing in 3 rate hikes for next year, possibly four. Inflation continues to surprise on the upside which could lead to even more hiking by the federal reserve.  If I assume three rate hikes on top of where rates are today (3.4%), that puts interest rates around 4.25%, this is almost a 20% increase from the realtor predictions.
  2. Continued Suburban flight: As 2022 gets started the pandemic will continue to become more endemic and the migration back to cities will continue as the demand for entertainment, restaurants, etc… comes back.  Furthermore, the birth rate in the United States just hit its lowest ever recorded, which means more of the millennial generation (the upcoming largest buyers of real estate) will desire the amenities of cities as they will have fewer and in many cases no children.

Summary

There are so many variables that will influence 2022 which are difficult to predict but the overwhelming majority are pointing to volatility in the coming year.  With volatility there will no doubt be some surprises.  The biggest one that I see now is that many, including the realtor’s association, are drastically under pricing future inflation and in turn how fast the federal reserve will have to increase rates.  If rates increase faster than anticipated this will cause a ripple effect throughout the economy including a stock market reset and substantially higher mortgage rates.  The first half of 2022 will likely be calm, but the fireworks could start later in the year which could drastically alter predictions.  I’ll send out an update sometime early q2 as we get a better handle on the feds moves and the impact mortgage rates and in turn real estate sales/appreciation.

 

Additional Reading/Resources:

 

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

 

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