What’s the real estate market going to do in 2022? Let’s talk about some of the emerging trends. Scroll quickly or digest slowly. Anything to add?
January public speaking gigs:
- January 12: Top Producer Panel in Granite Bay (sold out)
- January 18: SAR Big Market Update (sign up here)
- January 19: PCAR WCR Big Market Update (details TBD)
- January 25: Joel Wright’s Market Event (details TBD)
TRENDS TO WATCH IN 2022:
Continuation of a lopsided market: Many were hoping the housing market would feel normal by now, but that’s just not the case. In short, buckle up because this year is poised to begin with an ultra-competitive feel. We’ll see how the year ends, but we are starting with heavy competition.
Upward price pressure: There is still pressure on prices to rise due to an imbalance between supply and demand. We basically have a supply issue in that there aren’t enough properties getting listed, but we also have lots of demand stemming from historically low mortgage rates and other factors.
The color of the year: Pantone‘s color of the year for 2022 is called Very Peri and it combines blue hues with violet. I guess as a non-fashionable dude I would say this is purple-ish (sorry to offend any designers). Anyway, will we see more color this year? Honestly, I hope so because these past two years have been dark, so a little cheer is okay in my book.
Slower price growth is expected: Everyone and their mom has predictions about price growth and I typically stay away from specific crystal ball prophecies. But I will say it’s likely we’ll see a slower pace of appreciation this year compared to last year in light of atypically-high price gains in 2021, growing unaffordability, and anticipated mortgage rate increases. In other words, the median price grew 19.6% last year in the Sacramento region and it’s not likely we’ll see that again this year (hopefully not).
Bubble prophets: As we enter our eleventh year of price growth I suspect housing prophets to preach doom and gloom. My advice? Be careful about people who continually gravitate toward dark housing themes and punt predictions down the road when they don’t come true. Instead, listen to actual stats. Also, recognize markets go up and down, so at some point we would expect for prices to no longer rise since that’s what normal looks like.
Some buyers are worried about buying at the top: There are buyers who are legitimately worried about purchasing a property in 2022 because they wonder if the top is near. Look, nobody knows the future and this is a big conversation that only brings up more questions. Here is a post I wrote with some things to consider as a buyer right now.
Divorce: All the divorce attorneys I know are really busy. While I don’t have divorce statistics (difficult to get), I suspect the pandemic has caused life reflection and many couples have decided to call it quits. Of course, having years of equity may propel this decision for some too.
We won’t get back to normal listings: Many of us are exhausted about talking about the pandemic, but the truth is COVID-19 has been a game-changer for real estate as we’ve seen fewer sellers listing their homes since this all began. Anyway, for this year hopefully we’ll see more listings than last year, but unless something unexpected happens it’s hard to imagine we’ll get all the way back to normal (I hope I’m wrong).
iBuyers will gain market share: Here’s the bottom line. Institutional money is targeting residential real estate and its going to keep trying to get a slice of the pie. While tech flippers don’t have a massive share of the market, for now it looks like they’re going to keep trying to crack the code. Zillow failed last year, but let’s be careful not to pin their failure on the iBuyer model itself because Zillow was simply overpaying. By the way, keep an eye out for OfferPad as a new iBuyer in California. Lastly, here’s the number of units owned by the following companies in the region: Opendoor (312); Redfin (52); Zillow (500); Invitation Homes (157 recorded since May 2021).
Affordability is heading the wrong direction: After such massive price gains recently it’s no surprise to see diminishing affordability. The California Association of Realtors states only 24% of households in Q3 2021 could afford the median price in the state. Therefore, I expect to hear more conversations about the struggle of affording a home. Yet as painful as it is for some individuals to be priced out of the market, so far we haven’t seen any mass exodus of buyers. The key here is to watch closely what happens with sales volume and whether local buyers are closing deals or not.
Leaving California is going to look good this year: The ability to work from home, early retirement, and a decade of equity gains will likely fuel more migration this year. Well, and people leave the state for other reasons too. I shared some migration stats at the end of last year and I’ll update my charts once the Census Bureau publishes data (they’re delayed). Ultimately California lost population last year, which is a huge deal. But to be fair it’s important to recognize population stats aren’t just about people leaving. Remember, population has to do with inbound migration (people coming), outbound migration (people leaving), the birth rate, and the death rate. All I’m saying is this year when having migration conversations, let’s consider all of these factors. Where are people you know moving to? If you are considering moving, what is your motivation?
Mortgage rates rising can affect the feel of the market: Nearly everyone has predicted an increase in mortgage rates this year. Assuming rates do rise (we’ll see), this is bound to help soften some of the housing insanity and remind us how sensitive the housing market is to rate changes. I’m not saying rates are going to shoot up dramatically, but do you remember how dull the market felt in 2018 when rates went above 4.5%? This is worth noting because recent history reminds us the housing market is sensitive to rate changes. In my mind we hit an inflection point in mid-Summer 2020 when rates went below three percent. At that point the market started to feel more like an auction with intense bidding wars due to excessive demand. The struggle is if rates rise to 3.6% like Redfin thinks, that’s still incredibly low and probably not enough to make the market feel “normal” so to speak. However, I suspect a rise to the mid threes would at least be enough to take away some of the insanity we’ve felt lately (some). Check out Len Kiefer’s visual to show how ridiculous rates have been since 2020.
Saying goodbye to single-family zoning: A few cities have amended single family zoning rules in recent years, so this is a brewing national trend to follow. In California SB9 is now in effect and this law allows property owners to build a duplex on any residential lot or subdivide to build up to four units. I tend to think this isn’t going to change the landscape of neighborhoods because most property owners won’t do this because it’s expensive. But it’s important to watch this as a trend popping up in patches throughout the country and pay attention to any talk of building multi-units within single family zoning.
Racism in real estate: I expect we will see many more headlines about racism in real estate. Much of the conversation has focused on appraisers, but it will likely spread to other professions within real estate too. My advice? Listen, be a part of the conversation, take inventory of the words you use, and change as needed. If you are local and want to understand some of the history of redlining and restrictive racial covenants, check out this UC Davis talk by Dr. Jesus Hernandez. And when it comes to appraisals, please be aware there are many reasons why an appraisal might come in lower than expected (or too low). I don’t say this to dismiss the seriousness of claims of racial bias we’ve all seen in the media. I’m just saying I’ve also seen some flippant accusations this year and that’s not right.
Other: What did I miss? What’s on your mind for the year?
RECAP NEXT WEEK: Stay tuned for an annual market recap post with new visuals. Check out my social media this week for some previews.
I hope this was helpful or interesting.
Questions: What else do you think will be important in 2022? Did I miss something? I’d love to hear your take.
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Hey Ryan, happy new year. Good recap/outlook. Very sensible.
Happy New Year Joe!! Thanks so much. Here’s to a wonderful year ahead. At some point we need to connect. I miss seeing you in person.
My clients have been moving most to Tennessee, Arizona and Texas.
Thanks Johnny. Those are popular destinations. I hear lots of people moving to Idaho and Florida also. I’m anxious to get more up-to-date stats to see what migration looks like.
Idaho is great but needs the big employers and tech companies to move that direction. Prices are up above 400k so people look at Texas and other states where they can buy a house for less monty. Also lots of builders and development in Idaho so could be future saturation.
Thanks. Yeah, I’m wondering about saturation also. I know some people who moved to Boise and it’s been stunning to see such rapid price growth.
All that said, if retirees are moving, then to be fair it may not be necessary to have major employers. This is where I’d like to see a breakdown of demographics.
Yes Idaho is still way cheeper than California!
I own several homes there and have a development project, what happened it the price gap between resale and new homes has shrunk. Its hard to track stats because there are so many projects coming online. You can track permits however builders pull permits way ahead of time so it convoluted/hard to tell how much supply is really out there.
Fascinating to hear about the price gap narrowing. Thank you for sharing. Hey, on a side note regarding supply, your comment made me think of Ivy Zelman saying she thinks we are actually already overbuilding. Her take is contrarian to what basically everyone else is saying. I’m definitely keeping tabs on her commentary because she has a keen mind. Here’s a recent interview. Full disclosure. I haven’t listened to this one yet, but I will. It’s been in my inbox for a few weeks or so. 🙂 https://www.youtube.com/watch?v=lrVIWU_BnmE
She is the best! Her big points are that in the long term there is a decrease of population growth which will effect the new housing formation/demand. Short term is that the supply chain could effect the market and give it more juice in prices due to lack of supply. Or could go the other way if builders and developers are able to turn up the gas and push up the supply. This is obviously market by market. Boise Idaho has a lot of private and new public builders crowding the market so this could get hit the hardest. And Sacramento is safer as I don’t think there are as many new home projects compared to resale? The big unknown will be rates, I feel if they push beyond 4% it will get ugly but Fed may bring them back down depending on inflation.
% of new home sales compared to resale and new developments in the pipeline?
Ivy is a must listen!!!!
Thanks. Love the commentary. I think the criticism she gets is not every market is the same, so there is some truth to that. Yeah, new homes are dwarfed by the resale market. We have somewhere around 7,000 or so new homes according to North State BIA whereas there are closer to 28,000 or so resales on MLS for the year. But the 7,000 figure might even represent more counties that just the four counties I cover (that make up 28,000 or so sales). For any onlookers, North State BIA publishes the best local data on new construction, though they are a little slower to put up numbers. https://www.northstatebia.org/press-releases/
Love the list of things to trends to watch. I really hope this is a good year for real estate. I banking on it by hiring more people than normal this year.
Thanks Gary. It’s starting out like it’s going to be a busy year. We’ll see how it ends. Blessings to you and your family this year!
I will be watching the trends this year but have no predictions about real estate ever since I smashed my crystal ball in the mid 1990s. Ill continue to report on what happened, my inner Nostradomus is taking 2022 off. For the folks leaving California, I am happy to pitch in on the UHaul costs. I hope the greener pastures aren’t full of cow pies. I agree that California policy around zoning wont aleviate the housing shortage, HBU falls apart with the financially feasible question-it’s too expensive to build. More CA policy: AB 948 now requires appraisers to take CE on elimination of bias and cultural competency, which makes 21 of the 56 hours required to renew non-negotiable, take what they tell you to take. And finally..everyone, including my Mom has an opinion on price growth, she says look for a 5% increase in median prices. Happy Healthy New Year. Blessings!
Thanks Mark. I appreciate your mom pitching in her market expertise also. It sounds like she should have a YouTube channel… Maybe you can be the co-host?
We do have to be really careful about predictions AND cautious about being swayed by viral real estate narrative of the week too. Real estate is a bit like Y2K in that there is so much hype about things that often turn out to be complete non-factors. Case-in-point. So many people said that Zillow’s exit would crash the market. Well, that didn’t happen AT ALL. Or I recall colleagues throughout real estate sharing certain viral videos these past two years talking about the market’s demise. And guess what? Didn’t happen.
All that said, I think when it comes to market analysis it’s good to recognize trends to get a sense of what it looks like the market is poised to do. Part of this too is understanding normal seasonal dynamics so we can recognize patterns that are baked into the market and then speak to what is normal vs what is not. To me knowing the numbers and seasonal trends helps me stay grounded and promote objectivity to hopefully avoid being swayed by headlines and fleeting weekly narratives. I enjoy having a vantage point of studying numbers and trends. That doesn’t mean I’m right about everything, but I do think it makes me a better appraiser and a better market analyst.
But yeah, humility about predicting the future is key. I think 2020 taught us anything can happen. Truly. On a side note, imagine if mortgage rates actually went to 2.5% instead of increasing? 🙂
I’m rambling. Have a great day Mark.
Crystal ball is ok, just make sure its 6 months or less, lol
Haha. Hey, there is some truth to that. In my mind it’s prudent to have an idea what will happen a couple of quarters ahead in light of what stats are doing at the moment. But we never know for sure… I can’t wait to share stats next week though. They are on STEROIDS right now.
So Mark what exactly is wrong with Cow Pies. Remember who is at the end of this response, big guy. Careful, cows and horses are sensitive too.
Thank you Ryan! Excellent educational information! Hoping more realtors and lenders will follow suit and just stop the insane predictions. Each time I hear one—my new 2022 comment is going to be “Follow Ryan Lundquist he follows the stats!”
I look forward to hearing more on the migration info-it would be interesting to see how that ties into jobs-both remote and on-site positions in CA.
Happy New Year!
You are too kind. Thank you for the encouraging words. I hear you on predictions also. We need to be really careful about focusing too much attention on the future because the truth is nobody can predict it. For people who feel really comfortable predicting, comment below how much bitcoin is going to be worth in one year from now. And let me know if it’s going to be difficult to find skinny jeans instead of mom jeans. While you’re at it, predict if we are going to be in a drought next year, who the next governor will be, and what percentage of the market OfferPad is going to have in 2022. Yeah, predictions are difficult. We don’t even know who the next president of the United States is going to be (not looking for political conversation just in case any onlookers were hoping to rage).
For migration stuff check out California Policy Lab. I’ve relied more heavily on Census Bureau stuff in the past, but they’ve really been delayed unfortunately. I’ll be sharing some of their visuals in presentations this month and maybe even on my blog. The problem with any migration stats is there is such a lag. It’s like the trend happens, but then it takes a year for the stats to come out, so the numbers don’t really even explain the current trend. They simply tell us what happened a year ago.
Ryan…..Thanks for the post. I listened to the presentation by Dr. Hernandez on redlining and restructuring and found it to be very educational with regards to how neighborhoods are economically rich or poor.
Right on Dave. It’s amazing to know the history of why things are the way they are.
“Idaho is way cheaper than CA.” I’d say a big No on that one. I’m a former RE investor from CA and we’ve lived in Idaho for years now. Our region is WAY more expensive than where we lived in CA. North Idaho here is more like Truckee prices everywhere. Lots of Californians have moved here thinking they would live like kings and they’re still renting are realizing that everyone and their mamas who have cash are lined up waiting to buy property here. If you aren’t super motivated to live in a conservative area then staying in California honestly makes way more sense at this point and it is considerably cheaper. Thought I’d chime in since I still hear about Californians that think it is cheaper here…it is not. Hasn’t been for a long time now.
Thank you. Yeah, I casually watch the Boise market and the median price isn’t much different than Sacramento. Though to be fair it really depends on where you are comparing in California. I suspect as a state the median price is still almost twice as much as Idaho. CA is closer to $800K and Idaho is closer to $400K from my understanding (someone can correct me on this as I only did a quick search on Idaho). But the Sacramento region is around $560K for the median price and a google search shows Boise around $530K. That’s extremely close. And Sacramento County itself has been hovering around $515K, so Boise could be more expensive.
I don’t think comparing the median state to state is very helpful because there are too many factors that would skew median. We have a few million people +or- here in the whole state and mostly rural although our metro areas, namely Boise and Sandpoint/CDA (coeur d’Alene) is where everyone and their mamas who are conservative w/ $$ are moving. So if you compare where I live, around CDA/Sandpoint to a high-end CA metro you will find that prices are extremely comparable and not a relative bargain here on any conceivable level. Even raw dirt is speedy here, I can buy dirt in the Amador or Nevada Counties of the world for WAY less than anywhere in this region of Idaho for example. It is more like Placer Co. dirt prices in semi rural North Idaho. Multifamily is same price. And our luxury market is generally more expensive than the greater Sac area, even Granite Bay etc. Our waterfront prices are like SoCal beach prices. My main point was that for the people that think they can sell in Sac and live like a King in Boise or North Idaho (CDA/Sandpoint) good luck to you, I hope your 5th wheel is comfy because you will be in it for a long time. There is major cash in these markets now and it would be a lateral move to sell in Granite Bay and move to Eagle, or Coeur D’alene etc which is the apples to apples trade I am referring to. I know a lot of people trading out of CA and hoping to get to Idaho, I think the covered wagons will be heading back to CA, or elsewhere.
Oh, I completely agree about the median. It’s just an example. Though comparing Sacramento as a whole with Boise as a whole is not a bad quick gauge of the market. I think you’re right about selling in Sacramento and living in Boise. For many people it could be a lateral move financially. However, there is a savings on property taxes and other taxes, so there’s that… I’ve heard Eagle called “The Granite Bay of the Boise area” before. Interesting to hear you say that. I’m not in touch with the high-end market there. I knew someone from SoCal who bought land and built a custom home in Idaho only to move back the snow was a bit different than sand. 🙂
I’m not aware of savings on taxes in Idaho. Our property taxes don’t enjoy the protection of your prop 13. They will catch a lot of people by surprise. I mean, we aren’t TX with astronomical property taxes but CA’s prop 13 protection is a huge plus for remaining in CA. Boise isn’t all that special, it is like Roseville with tons of traffic. Personally don’t see the appeal. Eagle is “OK,” it’s like Granite Bay but nothing special about it other than some fancy homes. Boise is high desert and super dry most the year with winter time smog inversion (bad winter air quality.) I’m not a fan as you can tell. I think the days of trading out of CA to Idaho are long Done-zo. Will be interesting to see what happens in the next downturn if the CA sellers coming in here will mean the ID market gets hammered. I don’t see how it can’t in a sense but we shall see.
I visited Boise a couple of years ago in the summer and it was definitely hot. Yeah, we’ll see what happens in coming years. I couldn’t believe all the construction though. It felt like Elk Grove around 2004 (a suburb of Sacramento in case you don’t know (not sure where you are from)).
I feel you as prices have gone up so much there however wait until you see the data coming out from Ryan for Jan. Prices have gone through the roof and not slowing. I was looking at median prices in the Boise area and comparing to the Sacramento area. I know Coeur d’Alene is crazy high but a small part of the Idaho market. I don’t follow the higher end market but I think it has gone up more than the median so maybe that is what is getting costly. I live in North San Diego Area and prices are in the millions for a nice place in a good area. Take a look at prices in Granite bay/ Roseville in Sacramento and you might be shocked. Thanks for your response!
Thanks. And I can’t wait to push out stats. This morning I pushed something out on my social channels to show we had the fastest market ever in the Sacramento region last year. That’s not a surprise, but it’s fascinating to look at 20 years of stats and see it in writing. I’ll have some insane stuff to share about price growth last year too. Next week.
Hello Ryan and Happy New Year to you and the family. As to predictions. Hmmmm let’s see, so 12 years into an upward market. Hmmmmm will this continue???? As you know I am the 10 year treasury watcher. The bond market over the last 2 years has no idea what to do. Combine that with the cross talk from the Fed and YEP no one knows where the Bond market is heading. All I can say is “IF” it gets over 1.75 or 1.8 and holds, I think the psychological effect on the bond market and hence mortgages could be in for some interesting events. Now that said, if bond yields fall again, then my guess is we are comfortable with some increases up until we get toward the August timeline. Then all the fun, insane talk about politics will get nuts. That could either spook the market or make it just happy has heck. So, like you said, who knows….. Just a few things to watch. The other item you are always yakking about and rightfully so is housing inventory. Right now, down here in my area of So Cal, if we have 2 weeks of inventory that means we are in an oversupplied condition. “””Of course I jest” housing inventory is as bizarre as I have seen it in 30 years. Last item is your comment about Ivy Zelman. I need to look her up. Very interesting teaser there Ryan. Funny you and others commented on her as right now there are a couple of rural areas by me in the unincorporated areas outside Murrieta and Temecula that have absolutely gone bonkers on new housing starts. I had not been in this area of Winchester and East Murrieta in probably about 4 months. A whole new residential explosion has occurred with Model homes and phase 1, 2 and 3 being built all at once with 7 – 9 builders. It was shocking to see. The prices they are asking means the interest rates better stay low or the builders in this area might be in the “what the heck happened mode” again. I think 2022, will be interesting in the first half and then who knows what will happen. All my best to you, my friend. Take good care, Happy New Year to all your followers as well.
Great comments! I think your right on track…. I’m in Cardiff By The Sea not far from you. It’s nuts here, homes pop up in this general area for millions and sell fast and I’m always shocked. I feel the market is really state by state and area by area. Here in So Cal people are coming from the big cities- LA and SF pushing prices up creating that urban sprawl. I feel California is a better market than other states as supply is suppressed. Bay Area pushes up the Sacramento market the Sacramento pushed Idaho. Its a migration but it isn’t sustainable.
Best Wishes and be careful out there!
Thanks Brad. I love your commentary and I always appreciate you pitching in your two cents. Zelman’s thesis seems to be that based on permits pulled we are already overbuilding. We’ll see if she ends up being right. I’m anxious to see what happens to inventory over the next month especially with so many sick people. I wonder if some listings that would’ve hit in January will be punted to future months. Stay safe out there and I hope you get some good Lone Ranger horse riding time in… (sorry, I’m a city boy) 🙂
Thanks for your insight, Ryan~ It is always sensible and refreshing. I love to see the stats and share as much as possible with people I know. It will be interesting to see what happens this year and beyond!
Wishing you an awesome 2022!
Thank you so much Nan. I truly appreciate it. Happy New Year!!
Great information, as always! Thank you for your hard work in providing timely and thoughtful data. We all do better to pay close attention to the numbers, but your ability to synthesize and present relevant information is invaluable. Thank you!
A quick word about affordability . . . There is no question that we need to keep an eye on this topic and be sensitive to employment and wage concerns. But I believe the media, and CAR, are basing the ENTIRE discussion on MEDIAN home prices. While this is data we can’t ignore, in unusual markets (2020 and 2021) I wonder if the “MIDDLE” price of homes is higher than the average? In other words, while the trend of less affordability is relevant, is it possible that the AVERAGE home is more affordable than we think? It’s just something to keep in mind as employment and wage numbers continue to improve.
See you soon, Ryan!
Thanks Randy. I always appreciate your take. Your comment reminds me of the Common House Price Index put out by an economic company called HAUS. This index gauges an average home. I don’t think it touches on affordability here, but it’s maybe a somewhat related tangent. https://haus.com/resources/the-common-haus-price-index
That’s interesting about CAR. That’s a reasonable point to consider if it’s all about the median, though the average is higher than the median here in Sacramento. I’d actually love to see it both ways and maybe by price range somehow. Ultimately I think we need to stand back and think critically about who is buying and what they are buying.
On that note, when we look at glowing numbers this year for the entire market we do have to recognize there has been more emphasis at the higher end of the market. So in a sense the price stats for the county and region are somewhat padded (inflated) due to more sales at the top. For instance, in 2021 there were almost twice as many million dollar sales compared to 2020 in the Sacramento region and that’s something that can affect the stats. Thus on one hand when we see the median price grew by 19.6% some of that at least is due to what types of homes have been bought. It’s not just above $1M that has seen growth. The general truth has been way more at the top above $500K and less at the bottom below $400K especially.
Anyway, I’m starting to ramble. Thanks Randy. I hope to see you in person one of these days soon. It’s been a minute. I appreciate you so much.
Affordability is definitely a concern. Due to the re-shuffle/new migration people are able to work from home. This puts more money in their pockets and allows them to buy in more affordable areas. This gives consumers more disposable income. I feel the more time at home the more they will pay for a bigger nicer house. This had to have an effect on the crazy hot housing market.
You are 100% correct. It’s been a bit since I’ve seen charts on savings accounts, but when the pandemic first began statistics definitely showed people were saving serious money. Then mortgage rates went below 3% and people had lots of money to spend. I think lots of folks have wondered, “Where did all this money come from?” Well, at least some of it had to do with people stashing greenbacks while quarantining at home…
Hi Ryan,
Thank you for illuminating SB9 as it very much changes the options for some CA homeowners. I spent a fair amount of last year sorting through ADU options and due to an existing cottage being considered the ADU, a JADU was left which was not particularly interesting.
SB9 is quite restricted to target the benefits to the intended homeowners. I’m now considering a lot split and that has created a knock-on affect on the specific location of a planned workshop (with respect to setbacks and such).
Thanks again for sharing so freely on the changes affecting real estate in the region.
Thanks for sharing donfoo. If you end up moving forward I would be curious to hear. Best wishes as you decide.