What’s Going To Happen with Home Prices This Year?

After almost two years of double-digit increases, many experts thought home price appreciation would decelerate or happen at a slower pace in the last quarter of 2021. However, the latest Home Price Insights Report from CoreLogic indicates while prices may have plateaued, appreciation has definitely not slowed. The following graph shows year-over-year appreciation throughout 2021. December data has not yet been released.As the graph shows, appreciation has remained steady at around 18% over the last five months.In addition, the latest S&P Case-Shiller Price Index and the FHFA Price Index show a slight deceleration from the same time last year – it’s just not at the level that was expected. However, they also both indicate there’s continued strong price growth throughout the country. FHFA reports all nine regions of the country still experienced double-digit appreciation. The Case-Shiller 20-City Index reveals all 20 metros had double-digit appreciation.Why Haven’t We Seen the Deeper Deceleration Many Expected?Experts had projected the supply of housing inventory would increase in the last half of 2021 and buyer demand would decrease, as it historically does later in the year. Since all pricing is subject to supply and demand, it seemed that appreciation would wane under those conditions.Buyer demand, however, did not slow as much as expected, and the number of listings available for sale dropped instead of improved. The graph below uses data from realtor.com to show the number of available listings for sale each month, including the decline in listings at the end of the year.Here are three reasons why the number of active listings didn’t increase as expected:1. There hasn’t been a surge of foreclosures as the forbearance program comes to an end.2. New construction slowed considerably because of supply chain challenges.3. Many believed more sellers would put their houses on the market once the concerns about the pandemic began to ease. However, those concerns have not yet disappeared. A recent article published by com explains:“Before the omicron variant of COVID-19 appeared on the scene, the 2021 housing market was rebounding healthily from previous waves of the pandemic and turned downright bullish as the end of the year approached. . . . And then the new omicron strain hit in November, followed by a December dip in new listings. Was this sudden drop due to omicron, or just the typical holiday season lull?”No one knows for sure, but it does seem possible.Bottom LineHome price appreciation might slow (or decelerate) in 2022. However, based on supply and demand, you shouldn’t expect the deceleration to be swift or deep.

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There Won’t Be a Wave of Foreclosures in the Housing Market

When mortgage forbearance plans were first announced and the pandemic surged through the country in early 2020, many homeowners were allowed to pause their mortgage payments. Some analysts were concerned that once the forbearance program ended, the housing market would experience a wave of foreclosures like what happened after the housing bubble 15 years ago.Here’s a look at why that isn’t the case.1. There Are Fewer Homeowners in Trouble This TimeAfter the last housing crash, over nine million households lost their homes to a foreclosure, short sale, or because they gave it back to the bank. Many believed millions of homeowners would face the same fate again this time.However, today’s data shows that most homeowners exited their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The latest data from the Mortgage Bankers Association (MBA) studies how people exited the forbearance program from June 2020 to November 2021.Here are those findings:38.6% left the program paid in full19.9% made their monthly payments during the forbearance period11.8% made up all past-due payments6.9% paid off the loan in full44% negotiated work-out repayment plans29.1% received a loan deferral14.1% received a loan modification0.8% arranged a different repayment plan0.6% sold as a short sale or did a deed-in-lieu16.8% left the program still in trouble and without a loss mitigation plan in place2. Those Left in the Program Can Still Negotiate a Repayment Plan As of last Friday, the total number of mortgages still in forbearance stood at 890,000. Those who remain in forbearance still have the chance to work out a suitable plan with the servicing company that represents their lender. And the servicing companies are under pressure to do just that by both federal and state agencies.Rick Sharga, Executive Vice President at RealtyTrac, says in a recent tweet:“The [Consumer Financial Protection Bureau] and state [Attorneys General] look like they’re adopting a ‘zero tolerance’ approach to mortgage servicing enforcement. Likely that this will limit #foreclosure activity for a good part of 2022, while servicers explore all possible loss [mitigation] options.”For more information, read the warning issued by the Attorney General of New York State.3. Most Homeowners Have More Than Enough Equity To Sell Their HomesFor those who can’t negotiate a solution and the 16.8% who left the forbearance program without a work-out, many will have enough equity to sell their homes and leave the closing with cash instead of facing foreclosures.Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home. As Frank Martell, President & CEO of CoreLogic, explains:“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”4. There Have Been Far Fewer Foreclosures Over the Last Two YearsOne of the seldom-reported benefits of the forbearance program was that it allowed households experiencing financial difficulties prior to the pandemic to enter the program. It gave those homeowners an extra two years to get their finances in order and work out a plan with their lender. That prevented over 400,000 foreclosures that normally would have come to the market had the new forbearance program not been available. Otherwise, the real estate market would have had to absorb those foreclosures. Here’s a graph depicting this data:5. The Current Market Can Easily Absorb Over a Million New Listings When foreclosures hit the market in 2008, they added to the oversupply of houses that were already for sale. That resulted in over a nine-month supply of listings, and anything over a six-month supply can cause prices to depreciate.It’s exactly the opposite today. The latest Existing Home Sales Report from the National Association of Realtors (NAR) reveals:“Total housing inventory at the end of November amounted to 1.11 million units, down 9.8% from October and down 13.3% from one year ago (1.28 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago.”A balanced market would have approximately a six-month supply of inventory. At 2.1 months, the market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand.Bottom LineThe end of the forbearance plan will not cause any upheaval in the housing market. Sharga puts it best:“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect. . . .”

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Expert Insights on the 2022 Housing Market

As we move into 2022, both buyers and sellers are wondering, what’s next? Will there be more homes available to buy? Will prices keep climbing? How high will mortgage rates go? For the answer to those questions and more, we turn to the experts. Here’s a look at what they say we can expect in 2022.Odeta Kushi, Deputy Chief Economist, First American:“Consensus forecasts put rates at about 3.7% by the end of next year. So, that’s still historically low, but certainly higher than they are today.”Danielle Hale, Chief Economist, realtor.com: “Affordability will increasingly be a challenge as interest rates and prices rise, but remote work may expand search areas and enable younger buyers to find their first homes sooner than they might have otherwise. And with more than 45 million millennials within the prime first-time buying ages of 26-35 heading into 2022, we expect the market to remain competitive.”Lawrence Yun, Chief Economist, National Association of Realtors (NAR):“With more housing inventory to hit the market, the intense multiple offers will start to ease. Home prices will continue to rise but at a slower pace.”George Ratiu, Manager of Economic Research, realtor.com:“We also expect a growing number of homeowners to bring properties to market, taking some pressure off high prices and offering buyers more options.”Mark Fleming, Chief Economist, First American:“Strong demographic demand will continue to act as the wind in the housing market’s sails.”What Does This Mean for Buyers?Hope is on the horizon for 2022. You should see your options grow as more homes are listed and some of the peak intensity of buyer competition starts to ease. Just remember, rising rates and prices are a great motivator for you to find the home of your dreams sooner rather than later so you can buy while today’s affordability is still in your favor.What Does This Mean for Sellers?Make no mistake – this sellers’ market will remain in 2022 as home prices are projected to continue climbing, just at a more moderate pace. Selling your house while buyer demand is so high will truly put you in the driver’s seat. But don’t wait too long. With more listings projected to become available, your ideal window of opportunity to stand out from the crowd won’t last forever. Work with an agent who knows your local market and current inventory conditions to ensure you have the support you need to make an educated and informed decision about selling in the coming year.Bottom LineIf you’re thinking of buying or selling, 2022 may be your year. Let’s connect to discuss your goals and the unique opportunities you have in today’s housing market.

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