2022 – What’s the Market Gonna Do?
The 2022 Housing Market already has a ton of different forecasts from experts across the board. It seems the most pressing question from home buyers and sellers, alike, is “Will the market crash?”
It’s a question I’ve been asked over and over in the last couple of years. “The sky is falling!” has been shouted more than a few times but it hasn’t fallen yet… What’s 2022 gonna bring?
The best way to predict the future (and then, it’s not guaranteed!) is to take a look at the past. Analyzing the situational circumstances and trends allows for an educated guesstimate about the future. Again, no guarantees, just best guess based on facts and figures.
So, let’s take a quick look at recent past history, the state of the world and some housing market stats to make our best predictions…
The Housing Market Crash – History
As parents, we always tell our kids to learn from their mistakes. In our economy, we can & should do the same thing!
The housing market crash was caused by a build up of factors like these:
- Lenders signed off on bigger loans to more people than ever – regardless of their ability to repay the loan (sub-prime lending)
- More Adjustable Rate mortgages were written where the payment was low but when adjusted at 1, 3 or 5 years, payments skyrocketed to be unaffordable to homeowners.
- Mortgage fraud with relaxed underwriting standards got people approved for a mortgage that really couldn’t afford it – sometimes without the borrower’s knowing.
- As homeowners started defaulting on their mortgages, flooding the market with inventory, there simply weren’t enough buyers to take advantage. Banks wouldn’t refinance the defaulted homeowners because they owed more than the home was worth in the first declining housing market in years. Foreclosures and homeowners/investors walking away from homes/loans became rampant along with foreclosures and bank owned homes.
- In 2006, the US home price index recorded its first quarterly decline in more than 11 years.
- So, instead of lending too freely, banks didn’t lend enough. That sent the housing market deeper into decline.
The housing market simply couldn’t handle it and the housing bubble burst.
What’s the Difference Between…
the Housing Bust and What’s Happening Now?
Factors Driving Today’s Housing Market
Today, the problem is good old Supply vs Demand. Consider the following:
- The Millennial Generation is the largest generation
- Silent Generation (1928 – 1945) – 21.78M
- Baby Boomers (1946 – 1964) – 70.68M
- Generation X (1965 – 1980) – 64.95M
- Millennial Generation (1981 – 1996) – 72.26M
- A lot of them are in or coming into prime home buying age (26 and 35 ) and looking to buy a home.
- Baby Boomers are not selling their homes as much as older generations did at their age. Lots are staying put which means less inventory of existing homes on the market from the 2nd largest generation.
- Builders have been woefully behind in the number of new builds for the last 10 years – particularly in the starter home price range.
- Historically low mortgage interest rates add fuel to the home buying fire frenzy.
- After the housing bubble burst, many single family homes were converted to rentals. Investors aren’t selling their investment homes.
- In 3rd Qtr 2021, negative equity (homes worth less than what is owed on them) on all mortgaged properties in the US was at 2.1%. Not enough homes to help the shortage even if they all were foreclosed on. For comparison, in 4th Qtr 2009, homeowners with negative equity was at its peak at 26% of all mortgaged properties, which inundated the market with foreclosures and bank owned properties. This made the supply larger than the demand for homes, back then.
Supply and Demand…
So… going back to high school Econ 101 (thanks Mr Steele!), the above information shows that the demand for homes is there but the supply/inventory to meet the demand, is not.
This, is what is driving the home values up. When something is in short supply, the price typically goes up.
Nationally, homeowners saw a gain of an average of $56,700 in equity over the past 12 or so months. WOW! That’s the main reason we aren’t going to be flooding the market with tons of foreclosures or bank owned properties to ease the shortage.
Homeowners who are behind due to forbearance, job loss or other pandemic/economic factors can usually just sell their home to meet their mortgage obligations.
What Other Factors Can Affect the Housing Market?
What is the Forecast for the
2022 Housing Market?
2022 Housing Market Predictions
Predictions are something that “might” happen – like a guesstimate. Experts look at historical data and current data and predict what they think might happen. There are no guarantees!
Here’s what experts predict will happen:
- In Central Indiana, we are expecting the Seller’s Market to continue through 2022 – though not at the crazy pace of the last year or so.
- Home appreciate will continue but likely in a single digit percentage instead of the double digits of recent years.
- Buyer Demand will still be there with one of the largest generations looking to buy a home of their own.
- Inventory will still be tight but may see some loosening up as more sellers decide to take advantage of the seller’s market while it’s still in full swing.
- The Fed has stated they will start raising interest rates as soon as possibly sometime in the 1st Qtr, 2022. This will affect some buyers ability to buy a home – those on the cusp with their credit rating and DTI, may be knocked out as rates increase.
Overall, we are anticipating a good market in housing for 2022, though not the record breaking pace of 2020 and 2021.
Sellers who want to cash out while the equity is still at all time highs should consider doing it sooner rather than later.
Buyers who want to take advantage of their money going the farthest it will, should consider doing it sooner, rather than later, too.
Metro Indianapolis has been named the 4th best housing market positioned for growth in 2022 by Realtor.com. This will likely to continue to fuel the demand for housing in Central Indiana with both home buyers and investors.
The BEST answer to whether it’s time to buy or sell a home is up to you. While watching and being aware of the housing market is a smart move, you should ALWAYS look at your own circumstances, finances and need to decide whether you will buy or sell. Period. 🙂
