affordability

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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