For almost the past two years, real estate professionals have been riding the housing boom to record sales and transaction volume. However, as home prices reach astronomical levels, some experts, agents and economists have warned of another housing crash that could rival the Great Recession.
Lawrence Yun | Photo credit: NAR
Although those concerns are grounded in some concerning data trends, National Association of Realtors Chief Economist Lawrence Yun told Realtors Conference & Expo Conference attendees on Friday that industry members have more to celebrate than to fear in the upcoming year, thanks to several headwinds that could aid homesellers and homebuyers alike.
Here are five insights that signal a solid 2022 is ahead.
No, a housing crash isn’t on the horizon
The skyrocketing home price growth of the past year has triggered worries about another housing crash. Although current home price trends are indeed on par with what happened before the Great Recession, Yun said controls around subprime lending, low mortgage rates and robust demand from qualified buyers will stave off a collapse.
“The last time, the price-to-income line was that high, we had a home price collapse. So at least we should be aware that we are matching up to back to 2005,” he said. “Of course the situation is much different. We don’t have those risky subprime lending, we don’t have oversupply.”
Yun noted the home price crunch is hitting buyers across the nation, even in markets that have been historically considered affordable, such as Boise, Idaho; Salt Lake City, Utah; and Charlotte, North Carolina, quickly catching up to their historically expensive counterparts like Chicago and New York City.
“Charlotte and Chicago are almost matched up [in home prices],” Yun explained. “So another way to put it is Charlotte used to be affordable, much more affordable than Chicago. But today, they’re essentially at the same price levels.”
Mortgage rate hikes will be manageable
Mortgage rates have been steadily climbing over the past several months, with the 30-year fixed rate reaching 3.21 percent on Thursday. Yun said more hikes are on the way, with the Federal Reserve possibly raising mortgage rates up to 3.7 percent. Although that’s well above the rock-bottom rates seen in 2020, he said most buyers will still benefit.
“I showed you some alarm figures on the price-to-income [ratio],” he said. “But if you take mortgage rate into account because mortgage rate lowers the monthly payment, mortgage payment to income is still very manageable.”
First-time buyers may get some needed help
While financially secure buyers will be able to expertly navigate rising home prices and mortgage rates, first-time buyers will have a harder time as they tend to have lower incomes and struggle with saving a sizable down payment.
Although the Fed is unlikely to give them a break by reducing mortgage rates, lawmakers are taking legislative measures to bolster their down payments.
Yun highlighted California congresswoman Maxine Water’s proposal that would give first-time homebuyers $20,000 toward their down payment with set bonuses for minority and low-income homebuyers. “It’s about moving the dial in terms of what’s possible,” he said. “I’m not sure what will be proposed, but we also always need to consider the art of the possible.”
An inventory boost is coming
As mortgage forbearance expires, half a million homeowners are facing the reality of losing their homes. However, unlike 2007 and 2008, these homeowners have the option of selling their homes rather than go into foreclosure.
That unfortunate circumstance, Yun said, will likely lead to an inventory boost this spring. “We have this mortgage forbearance program that is winding down,” he said. “So it’s inevitable that some people will be forced to sell their homes and we will get more inventory.”
In addition to homeowners avoiding foreclosure, Yun said another segment of homeowners will be selling their homes due to other circumstances, such as the loss of a loved one due to COVID.
“The other part is the very sad, horrible news of what has happened to America regarding the [coronavirus] death rate,” he said. “Now, I don’t want to sound callous, but people will need help.”
“There are changes and family circumstances often that require the sale of a home,” he added. “I think this could also lead to some degree of inventory, and it’s helping people — they are saying, ‘My spouse passed away, I don’t need this large house and I’m going to consider something else.'”
The boost in inventory could lead to cooling home price growth, with 70 percent of NAR members projecting home prices will stabilize in their markets in 2022. “I’ve done the data correlation,” Yun said regarding agent sentiment and price trends. “[I’m expecting] very minimal price growth over the next upcoming year.”
Don’t worry too much about inflation
While homebuyers have major tailwinds coming to their aid, inflation will undoubtedly throw a few wrenches in Americans’ real estate planning in the upcoming year. Yun said rising costs of building raw materials and home appliances will pump up the cost of living for renters, homebuyers and homeowners alike.
“Inflation is very high,” he said. “Things like appliances, refrigerators and dishwashers are all expensive. [The cost of] mobile homes, I was surprised to find, are up 24 percent. So prices are rising everywhere.”
Despite inflation, Yun said real estate is still a safe bet.
“If we have inflation should you buy real estate? There is a decade-by-decade relationship between inflation and consumer prices,” he explained. “In the 1970s, Gerald Ford was running for the presidency and said, ‘I will whip inflation.’ ‘Whip inflation now’ was his campaign slogan.”
“So what was inflation in the 1970s? 7.1 percent. What did home prices do? [Rise] 9.9 percent per year. They beat inflation,” he added. “Decade after decade, you see that home values are generally a good hedge against inflation.”
