December 2021 Real Estate Market Update

December 15, 2021

Monthly Market Updates

A festive gingerbread house with the words "hello December" written beside it. The image evokes holiday cheer and the start of the winter season.

Let’s jump right in and discuss inventory. When do most listings come on the market? In a normal market, it would be the second quarter of each year (around spring). But the market is anything but normal right now, and showing signs that we will probably see more listings this winter than at any other time this year.

Home sellers have historically moved when something in their lives changed – a new baby, a marriage, a divorce or a new job. . . . The pandemic has impacted everyone, and for many this became an impetus to sell and make a housing trade. Jessica Lautz, VP of Demographics and Behavioral Insights at NAR

. . . the pandemic likely spurred occupants to shorten their home stay, as tenure in the home decreased to eight years from 10 years, according to the report. This is the largest single-year change in home tenure since NAR began collecting such data. National Association of Realtors®

From 1985 to the 2008 housing crisis, people stayed in their home an average of 6 years. Now, coming out of the pandemic, we’re seeing that dip down representing pent-up seller demand from all those years that folks have stayed in their homes and the fact that the meaning of home has changed for many.

The pandemic has delayed plans for many Americans, and homeowners looking to move on to the next stage of life are no exception. Recent survey data suggests the majority of prospective sellers are actively preparing to enter the market this winter. George Ratiu, Manager of Economic Research for Realtor.com

So what’s going on with interest rates? The overall outlook is interest rates are going to rise.

So going back, a lot of reasons we just talked about, folks thinking about moving, this study is saying we’re seeing a lot of those people preparing to enter the market this winter. In that study, 65 percent said they have either just listed or plan to this winter, 93 percent say they’ve already taken the steps towards listing their home, including working with an agent, 36 percent have researched the value of their home and others in the neighborhood, as well as started making repairs or doing what they need to do to sell their home. https://news.move.com/2021-11-11-Low-Temps,-High-Expectations-Realtor-com-R-Survey-Shows-65-of-Prospective-Sellers-Plan-to-Enter-the-Market-this-Winter

Prior to the pandemic interest rates were right around 4%. Right now, the average 30-year fixed is 3.1%. Most experts are predicting that to increase this coming year – perhaps to pre-pandemic levels of about 4%.

January of 2020, prior to the pandemic, knocking on the door of 4 percent. Right now the average 30-year fixed is 3.1 percent. Many calling for that rise going into next year, I’ll show you what forecasters are saying, but if you were to ask me what’s going to happen with interest rates, I think we’re going to go back to where we were. This is a historical perspective on interest rates, you know looking at 2016, ‘17, ‘18, ‘19, four really, I’m going to call them normal, years in real estate and we balanced somewhere between three and a half and 5 percent. I think we’re heading back there. I think we’re heading back into a much more normal interest rate environment. We’ve seen some phenomenal rates over the last year or so, historically low rates on a 30-year fixed, and I think we’re going to head back into a time where we were prior to the pandemic. http://www.freddiemac.com/pmms/

Looking at historical interest rates, where 2016 to 2019 were pretty normal years in real estate, we saw between 3.5% and 5%. This seems to be where we are headed for 2022.

This is a historical perspective on interest rates, you know looking at 2016, ‘17, ‘18, ‘19, four really, I’m going to call them normal, years in real estate and we balanced somewhere between three and a half and 5 percent. I think we’re heading back there. I think we’re heading back into a much more normal interest rate environment. We’ve seen some phenomenal rates over the last year or so, historically low rates on a 30-year fixed, and I think we’re going to head back into a time where we were prior to the pandemic. http://www.freddiemac.com/pmms/pmms_archives.html

Home prices are slightly impacted by rising mortgage rates. Looking all the way back to 2000, a rising interest rate environment doesn’t see depreciation (with the exception of the housing crisis). Price appreciation is resistant to rising mortgage rates.

Home prices are slightly impacted by rising mortgage rates. This is a look going all the way back to 2000 and what you see in the line graph there is the interest rate, and what you see in the bar graph is appreciation or depreciation during the housing crisis. The quick thing I want to point out is in each rising interest rate environment there’s no depreciation, except during that housing crisis, and we see okay, when you start to look at rising interest rate environments, the first one around 2005, less appreciation in 2006. You look at kind of 2012, ‘13 and ‘14, rising interest rate environment, less appreciation the last year. The next one, in ‘16, ‘17 and ‘18, we go up and come back down a little bit, so a slight impact in home price appreciation. freddiemac.com https://cdn.blackknightinc.com/wp-content/uploads/2021/04/BKI_MM_Feb2021_Report.pdf

House price appreciation is resistant to rising mortgage rates primarily because most home sellers would rather withdraw from the market than sell at lower prices – a phenomenon we refer to as ‘downside sticky’. Mark Fleming, Chief Economist at First American

if you go back, all the way back to 1999, which is what you see in this graphic, where we have interest rates in the line graph and home sales in the bar graph, we can see home sales aren’t impacted by rising mortgage rates. nar.realtor www.freddiemac.com

So are home sales impacted by rising interest rates? Looking all the way back to 1999, we can see home sales aren’t impacted by rising mortgage rates.

The economy is improving. First graphic, mortgage rate projections. This is an outlook from the four leading providers we follow; Fannie, Freddie, MBA and NAR, and what are they saying? Sometime between the middle and the end of next year, forecasting between three and a half and 4 percent in the average 30-year fixed, so it’s going to cost more and I think you should expect interest rates to rise. http://www.freddiemac.com/research/forecast/20211015_quarterly_economic_forecast.page? https://www.fanniemae.com/media/41656/display https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary https://cdn.nar.realtor/sites/default/files/documents/forecast-Q4-2021-us-economic-outlook-10-28-2021.pdf

Fannie Mae, Freddie Mac, the Mortgage Bankers Association (MBA), and the National Association of Realtors® (NAR) are the 4 leading providers of mortgage rate projections. They are predicting between 3.5% and 4% in the average 30-year fixed interest rate in 2022.

forecasters are calling for 5.1 on average, percent appreciation in housing next year, and you see anywhere from seven and a half to almost 3 percent appreciation on the low side. This is a direct nod to seeing more inventory come in the market, you know, the price will always be dictated by supply and demand in any market. https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary https://cdn.nar.realtor/sites/default/files/documents/forecast-Q4-2021-us-economic-outlook-10-28-2021.pdf https://www.fanniemae.com/research-and-insights/forecast http://www.freddiemac.com/research/forecast/index.page https://pulsenomics.com/surveys/#home-price-expectations

Now let’s take a look at the home price forecast for 2022. Forecasters are calling for an average of 5.1% appreciation in housing next year – a direct nod to seeing more inventory come in the market. We can expect relative to the housing market going into next year.

You know the other question that starts to come up and is on people’s minds at times is, is the housing market going to crash. I’m concerned about what I’ve seen, and forbearance and all the things that we know have happened in our business, the bottom line here is that housing sales are forecasted to increase this year and perform very well again in 2022. We always want to remind people that last year in 2020, we sold six and a half million homes in this country. We’re forecasted to sell more than that this year and more than that next year, leading for the past two years, phenomenal years in the real estate market, a very, very good year next year as well. https://www.fanniemae.com/media/41126/display http://www.freddiemac.com/research/forecast/index.page https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary https://cdn.nar.realtor/sites/default/files/documents/forecast-Q4-2021-us-economic-outlook-10-28-2021.pdf

A market crash is a concern for some people right now, but housing sales are forecasted to increase this year and perform very well again in 2022.

This slide here always does a great job to show just where we’re at in the real estate market based on months of inventory in the extreme seller’s market that we’re in. Thinking about selling your home? There’s literally never been a better time, and sometimes that feels like a broken record in us saying, and I know certainly all of you out there that are working with sellers and thinking about selling have said that many, many times. This graphic just underscores it, underscores going all the way back to 1999, what does the market look like, and it’s been a great seller’s market for those that have decided to sell. You know the last question that I’ll kind of address on these slides, that you need to have on your phone, the buyer that says I don’t know if I want to buy at the top of the market which, you know, you look at price appreciation, it’s certainly not the top of the market but that is a feeling. The buyer that says, you know if we sell, we’re going to have to pay more for another home, is what’s forecasted for appreciation. nar.realtor https://www.nar.realtor/topics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-jump-6-5-in-february

We are in an extreme seller’s market.

$111,285 potential growth in household wealth over the next five years based solely on increased home equity if you purchase a $350K home in January 2021 https://pulsenomics.com/surveys/#home-price-expectations

The Home Price Expectations Survey forecasts $111,000 in appreciation over the next 5 years. Seems like it’s the perfect time to both sell and buy right now.