What to expect from the Housing Market in 2022
By Lori Hoffman
As the New Year and the 2022 real estate market begin, what can we expect? The driving (and conflicting factors) we saw this fall remain in play - inflation, and how that will affect housing prices and interest rates, abiding low housing inventory, and now a resurgence of COVID. How these factors interact in 2022 is leading to uncertainty in predictions among housing sector economists. Most agree, however, that prices will continue to increase despite rising interest rates.
Mortgage rates are expected increase over the next year as the Federal Reserve acts to curb inflation. As reported in the Wall Street Journal, at its December meeting the Federal Reserve indicated it will accelerate its taper of bond purchases and conclude by March 2022, then begin incremental interest rate increases. Experts differ on where the rates will land, but increases up to 3.7% - 4 % for a 30 year fixed rate mortgage by year end are expected. This means that the early market may be the most intense, as buyers scramble to lock in lower rates. The real question is how much interest rate increases will affect prices in a market with incredibly tight inventory? As recently reported in Fortune, leading housing sector economists expect home prices to continue rising, but the rate of increase will be slower than they anticipated earlier this fall. Already, Zillow, Redfin and Fannie Mae and Freddie Mac have lowered earlier predictions of rate of price appreciation.
Although rising prices may be applauded by sellers, in a higher interest world, how high is too high? With higher interest rates, affordability is a real factor. New buyers may simply be priced out, unable to purchase a home that fits their needs. True, everyone needs to live somewhere - and buyers will have to compromise - but that may not be in the form of buying a home that does not meet their needs. Sellers in Westchester, where taxes are high (compared with nearby Connecticut), must be mindful of the conundrum facing buyers. Sellers whose homes have deferred maintenance must consider the difficulty buyers unfamiliar with home ownership may face in doing renovations, particularly in light of supply chain disruptions and labor shortages. Pricing should reflect these realities. Buyers are savvy and understand that a home with rotting trim, old bathrooms, an original kitchen from the 1980’s, may be difficult to address expeditiously; even in a "hot" market buyers will need to be incentivized to buy a home in need of repair. Sellers clinging to a premium price because of a strong market going into 2022, may find themselves left holding out as the market potentially shifts later in 2022. This strategy may be especially perilous with interest rates on the rise. How to thread the pricing needle and determine what repairs to make before listing requires careful balancing and analysis. At the Usha Subramaniam Team we carefully analyze pricing strategies, trends and market data in collaboration with our sellers ensuring an effective launch.