2022 Ellis Posner Real Estate Forecast
And that’s pretty much the truth, the whole truth and nothing but the truth: housing demand has reached a fever pitch. And as far as I can tell, it will continue on the same pace through 2022.
Why?
Well let’s start with everyone needs to live somewhere - housing is the largest addressable market on the planet, rents are through the roof, and as an investment, it can’t be beat.
So buckle up for an accelerating ride in 2022 and here’s my thoughts.
But first, I just went back and read what I wrote for my 2021 forecast. It was fairly conservative and pretty accurate. The only thing I didn’t include was that I would have my best year ever in Real Estate in 2021. You can read about that here.
Three themes I touched on last year were:
rebalancing of housing needs
the “Great Migration”
record low mortgage interests rates
So let me start out by reviewing those points.
REBALANCING OF HOUSING NEEDS
I’m anticipating that this trend will continue.
A year later it looks like the “work from home” trend is more than just a trend. I think a lot of workers who have now tasted what it is like to not commute for an hour a day aren’t willing to go back to that grind. And for many, even if their requirement to show up at the office is now only once a week or once a month, they will be more willing to travel further if it is not every day.
And along with that, if you are working from home, wanting a different home is not surprising because there are different needs.
VERDICT: rebalancing will continue to influence the market.
THE GREAT MIGRATION
I think at this point most of the people who want to move out of CA probably have done so. And I just read an article saying that many of those still leaving for Austin, Nashville, or wherever are renters. From what I have heard anecdotally from my departing clients, the price differential and savings while still substantial are just not as dramatic as they were in the past. In other words, it costs more to live in South Carolina than you might have thought.
VERDICT: less of a factor than in 2020-2021.
RECORD LOW MORTGAGE RATES
We’ve been saying rates have to go up for so long now that everyone is probably numb to it. But they are going to go up in 2022. They have to because at this rate (no pun intended), you can borrow at a rate lower than inflation. In other words free money or as close to free as you can get.
My concern is that as rates get closer to 4%, which most bankers are telling me is not likely in 2022, there will be a drag on the Real Estate market.
VERDICT: rates will not be a positive factor for the market in 2022. In 2021 I wrote the following:
“Sellers saw record high prices and Buyers saw record low mortgage interest rates. So something for everyone.”
WHAT CHANGES IN 2022?
INVENTORY LEVELS MAY NOT SATISFY DEMAND
I have serious concerns about the availability of listings. Beginning in November 2021 and continuing through the end of December, I have never seen inventory so low.
My concern is that Buyers may just get fed up and turn their attention elsewhere. After all, there’s only so many weekends that Buyers can rush to Open Houses, write offers, offer way more than they thought they would have to and waive all their contingencies only to be disappointed. It gets old fast. Like really fast.
But for those in the market, expect to pay higher prices. Much higher.
I think that as far as Southern CA goes and particularly LA County, you can expect to see greater than 5% increase by the end of 2022. I’m thinking that we may wind up closer to 10% in certain parts of the South Bay and Westside LA. That’s because I am anticipating much lower inventory than most anyone else.
This is one I hope I’m wrong about and maybe these forecasts are true on a national basis but I just don’t see it in the markets I work in.
IN A LOW INVENTORY ENVIRONMENT PRICES WILL GO UP
I am very confident about this but in full disclosure I have to note that there is not consensus among many forecasters. Here’s one take on things.
As I said, there are other perspectives for sure:
“Median existing home sales prices will rise 2.9% over the coming 12 months. 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 this comes to fruition, it would also be the slowest 12-month rate of price growth since 2012.”
The same source goes on to say: “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.”
BUYERS AND SELLERS WILL HAVE MORE OPTIONS
I’m seeing more programs to address one of the main challengers for traditional move up Buyers. Specifically choices to address the “Buy Before you Sell” dilemma. Or at least to make it easier to pull off that two step.
EASIER LENDING
Assume that at this point everyone who was going to refinance already has. Lenders still need to originate loans and I see an easing of the qualifying requirements. Well that’s unless the pandemic really hammers the economy again.
SUPPLY CHAIN ISSUES MAKE TURN KEY HOMES MORE DESIRABLE
I’ve been describing the ocean south of Long Beach a a “container ship parking lot” and that’s being generous. If you’ve tried to buy any appliances or (anything else) lately, just about everything is back ordered. So turn key move in ready properties are at a premium. And even on those, you can’t expect that a builder will be able to get everything they need by your close of escrow.
THE REAL ESTATE INDUSTRY WILL UNDERGO DISRUPTIVE CHANGE
There are too many undifferentiated Brokerages and agents, public facing websites and other redundancies. While a number of parties have been trying to “disrupt”, the disruption will be natural.
If transactions go down, there simply won’t be enough business to go around. As that forces some players out, the remaining ones will be forced to adapt in new ways.
The pandemic has already forced some efficiencies such as further adaption of 3D walkthroughs, video tours, electronic signings etc. These trends will continue.
I’m anticipating the commission structure might be under extreme pressure as more Buyers see how much they are paying for, and make no mistake they are paying. At some point Buyers may have to pay their agents directly. Not sure if that is coming in 2022 or later but it is coming.
Also we may see a change from the independent contractor model to an employee model. I’m already seeing that as some of the large teams take on headcount.
FINAL THOUGHTS
I’m not quite sure how accurate that is. Clearly people have some sense of how much their home is “worth” and don’t want to sell for less. What I see is “upside non sticky” meaning that at a certain price everyone becomes a seller. We’ll see.
AND BEYOND THAT
Truthfully no one knows…..