By MARSHALL MALONE
Imagine that you are in a ship, repairing the mast in the aftermath of a storm while the clouds of another storm begin to engulf you. That describes the real estate market in 2021; after the coronavirus’s impact on the housing market of 2020, when homes sold at tremendous speeds, under multiple offers and provided a testing ground for even the most experienced of real estate agents.
This has buyers and sellers asking what is in store for 2022 as buying activity is strong while we sit in the worst housing shortage in 50-years. Generally this means higher prices, and fewer days on market, with more people competing for each home. This might worry future home buyers who will look at a minimum of eight homes over eight weeks to find their home, only to find out they will most likely need to offer well above asking price in order to compete with other buyers.
There are two pricing strategies in a tight market:
► Price higher than market value because it is assumed you will get it. This will probably result in the listing sitting on MLS longer while losing momentum, and eventually selling for less.
► Price it slightly lower than market value, chumming the waters for more buyers who are desperate to make a purchase.
This should force a multiple offer cage match ending in a higher sales price. More often than not the market will correct poor pricing strategies, though there will be lessons learned from each.
What Can Impact Demand?
Here are some things that may impact demand in 2022:
► An uptick in mortgage rates, which will discourage some buyers.
► The core inflation rate is now at 4%, which means less money in our pockets for buying homes.
► The CARES Act’s forbearance programs could end, removing some protection for many people in vulnerable situations, forcing them to sell their home.
► There are more people returning to the office, which is slowing the migration to smaller cities. All of these factors could ease the market buying pool, if only a little.
► There are 4 million fewer total jobs in the United States than 2 years ago, making it harder to find jobs, though the unemployment rate appears strong at just under 5%.
Due to the COVID fueled buying frenzy of 2020, and a decade of depressed housing starts, fewer homes sold in Jefferson and Shelby County in 2021 than the year before. In short, fewer homes being available resulted in listings selling faster and for more money.
In 2021, we also saw a growing trend of multi-generational homes being purchased (11% nationally) as buyers pooled their resources to give them an edge in the market. Expect this to continue as home valuations continue to rise above affordable levels for first-time home buyers.
We saw more investors offering cash for homes to gain a better return on their money in real estate than in the stock market. We saw a great migration of big city dwellers move to more rural communities where they can work remotely. And we saw mortgage rates at historically low levels, stimulating higher demand.
First-time home buyers will likely be the most impacted by the latest mortgage rate news, along with recent job numbers, which should decrease their number below 34% of transactions, which was last year’s number.
High-end houses (more than $500,000) will most likely continue to sell at current or increased levels, as the people who can afford them will be least impacted by interest rates and job numbers.
Right now until early summer is the best time to sell in 2022. Expect a mini-surge in early spring, followed by a tapering off. More inventory could open up as forbearance sellers lose their federal protection. There will probably be an average of 20 days on the market replacing last year’s 11 days. Though interest rates are going up, they are still historically very low; so buying levels should still be strong.
This could also be a difficult year for real estate agents and we could see at least 20% of them stepping out of the business. Be kind to them, because they are losing sleep in a tough market and they are working diligently on your behalf. This year will most likely be a strong year in real estate, though perhaps not as frantic as 2021. It would be wise to have your ducks in a row prior to getting on the battlefield to buy a home. An experienced real estate agent can coach you on what to do to get ready.
According to the National Association of Realtors:
► 34% of home buyers are first-time buyers.
► 11% of purchases are multi-generational homes. This is an increasing trend as people are pooling resources to buy bigger homes.
► 15% of buyers purchased a new home compared to 29% in 1989. Inventory landscape and new construction dropped off and hasn’t caught up; it is almost half.
► 29% of buyers purchase for more than the asking price.
► Expect the house buying process to take eight weeks and include looking at eight homes.
► 52% of buyers want an agent to find the right home.
► 90% of buyers would use their agent or recommend an agent to others.
– Marshall Malone is a third-generation Realtor currently at RealtySouth inMountain Brook.
