It’s time to take a look at my 2022 housing market and economic predictions and see how I did… I’ll let you be the judge.
Affordability: The perfect storm, and not the fun kind. For this, I have three predictions in mind.
- Inventory will remain tight. Yes, there will be more than last year, but there was so little last year that it will still be a very competitive market.
- Property values will rise. Due to the still tight inventory and still high demand (more on that in a minute) property values will rise. However, nothing like they have over the last few years. Read this next sentence closely: you’ll see a decrease in the rate of increase, which will be reported like a downturn. What I mean by this is instead of 20% appreciation, we’ll see a much more normalized high-single-digit appreciation, and this will be reported like property values have actually gone down. Thanks, normal media.
- Rates will rise. I predicted that rates would rise in 2021 (and they did) and they’re going to go up more in 2022. I promise there will be a time a few years from now when people talk about their interest rates like seeing a bigfoot. No one will believe there was a time when rates were that low. Maybe we can even get some grainy hard-to-see photos of our mortgage statements like those bigfoot pictures we see sometimes.
These three things in conjunction will create a less affordable real estate market, but nowhere near the pace of change we’ve had the last few years which is a good thing.
Welp… I got this mostly right I’d say, but also kind of wrong.
Inventory indeed remains tight so nailed that one. I didn’t have the big seller pullback on my radar at the time, mostly because I didn’t have the FED rate-rise-a-topia on my radar. I knew they’d raise (see below), but I didn’t know how much, how fast, or for how long.
Property values will rise, got that one right too, but more because we had a good run for the first three quarters of the year then a dip in the last quarter. The trend line is obviously down. I was right on tight inventory but didn’t have the read on the pause button buyers would put on the demand side of the equation.
As for rates, I was mostly right but I would be a liar if I said I thought things were going to change/adjust/raise as crazy fast as they did in 2022 on the rate front.
Lenders get creative, again: The biggest impact on affordability is downpayment and payment (duh). When we hit the slowdown last time, we saw lenders get creative. Like modern-art-splatter-paintings creative. We had no money down loans, with no employment or income verification, and you could “pick a payment” and actually pay less than you owed. Shocker, that didn’t work out. I don’t think we’ll head back to that level of crazy town, but we’re already seeing “bank statement” loans for small business owners and the like. Since banks know rates are at historic lows, but don’t want to make the same mistakes they did in the past, I think you’ll see the following:
- More and more low downpayment loans. Things that will allow people to buy property with less cash out of pocket, but it won’t make it to 100% financing in 2022.
- Great deals on five- to seven-year adjustable rate mortgages. These mortgages are fixed for the first five to seven years and then they adjust. Banks don’t want the whole world locking into rates on 30-year fixes… that would crater the refinance market (which it pretty much already has).
There is no secret here. Banks make money by lending money. They’ve enjoyed the strongest refinance run in memory and that is going to drop off steeply. Banks will get more creative in an effort to make buying property more accessible, they need the loan volume.
This one is harder to hedge. Yes, lenders did get creative, but not quite in the way I had predicted. The mortgage market got cratered by the FED rate approach and lenders across the country were in survival mode. It was tumultuous, but in the end, we did see an increase in low down-payment loans. However, there were no “deals” on any mortgages in 2022… at least the perception was that there were not any deals. Yes, they got creative because they had to.
Buyer demand will slow: Just not enough to tilt the market down. I am seeing some household formation numbers that have me paying attention to the demand side of the equation, but I think we’re five to 10 years out from that rearing its head. The demand shift now will be due to high prices. It’s like that old adage, “The cure for high prices is… well… high prices.” At some price point, people will back away. We have seen that and will see more of it in 2022. This will be the biggest part of the easing of appreciation rates for real estate.
Nailed this one. The cure for high prices is indeed high prices, and then when you layer on top high interest rates the buyer will pull back, and they have.
Metaverse is a thing: Some companies will start offering “real estate like services” for people wanting to buy property in the Metaverse. I am sure I will write more about this in 2022, but people will want to own their own little slice of the Metaverse. It will be companies and early adopters, of course. It will in no way be mainstream and old guys like me (I’m 50) are going to be looking at it with a confused puppy face saying, “I don’t get it, you paid $2.5m for fake real estate?” However, I am sure the first time we used dirt to fill in a swamp to make “more land” some 50-year-old was looking at them saying, “that’ll never work.”
Imagine this: Pick your favorite hobby or sports team and imagine there was a hangout spot online where you could just “be” with like-minded people. How many of us 15 years ago would have said we’d be staring at our phones, “talking” to people all over the country, and seeing what they had for breakfast? Is the Metaverse the next big thing? Maybe, but the trend will start in earnest in 2022.
I mean, I’m sure if I dug around the internet long enough I could find some kind of report of “property values in the metaverse” and they’d be up. I still think the Metaverse will be “a thing” but it for sure wasn’t a “thing” in 2022. We were a lot more worried about REAL real estate than figuring out how to kick it with Snoop Dog in Doggieville (or whatever it’s called) online.
So there you have it. It is always fun to look back and see what I got right and what I got wrong, and more interestingly, what I got right but not for the reasons I thought.
Next month, I’ll put my reputation on the line to tell you what I think 2023 will hold. Stay tuned.