While fourth quarter numbers have yet to be released, it’s safe to say that 2021 has been another bumper year for the housing market. Interest rates remain near their historic lows despite gradual increases last fall. The year also brought record foreclosure rates and the highest number of home sales, according to Zillow records.
Yet concerns are mounting as the country struggles to recover from the COVID-19 pandemic, with new strains of the virus emerging and hampering our economic progress so far. The supply disruptions and constraints are expected to continue until next year, causing house prices to stay high, and demand not likely to drop until well, who knows when?
Don’t take it from me, however; take it from our industry experts at some of the game’s most reputable companies: LoanStream Mortgage, RCN Capital, and First American Financial.
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Difficult year for buyers
As supply continues to decline and demand remains high, or in some places increases even more, sellers will continue to profit from the real estate frenzy until next year.
At first glance, the outlook for the 2022 housing market is familiar – a millennial strong demand for housing limited by a historic and continuing shortage in housing supply. This supply-demand imbalance has generated the record home price appreciation seen in 2021 and, given that this dynamic shows few signs of changing, we expect house price appreciation to remain high in 2022 , said Odetta Kushi, deputy chief economist at First American.
But, house prices will have to stabilize eventually, right?
Erica LaCentra, Marketing Director of RCN Capital, said: 2022 will likely be another tough year for buyers. While house prices are not expected to rise in the coming year as quickly as in 2021, prices are not expected to fall from the extremes they reached last year due to limited inventories and intense demand from buyers.
Home prices will likely start to stabilize at a point where buyers won’t see prices climbing so quickly, so there will be at least a little more consistency, LaCentra continued. “However, with prices still high and mortgage rates starting to rise, affordability will be a significant challenge and buyers will continue to struggle in a highly competitive market.”
Extraordinarily high prices and rising mortgage rates should lead to lower demand, right? With the proliferation of remote work and outsourcing, maybe not.
Appreciation and demand, coupled with low rates, have created an environment in which home prices have risen dramatically over the past few years, said Thomas Shaw, Director of Marketing and Technology at LoanStream Mortgage. Along with remote working and offshoring, more and more markets have seen significant demand for housing and increased appreciation. Rising rates can put downward pressure on the appreciation of house prices, but the demand for housing can keep the appreciation stable and prevent the appreciation from falling. ”
Shaw points out that unconventional loans, primarily non-QM, will become more popular as rates rise and refinancing activity dries up. Mortgage programs such as Non-QM will seize the opportunity to step in and provide affordable loan programs for higher loan markets and opportunities for the borrower who may be just outside the conventional box with 1099, large assets, ITINs and foreign domestic borrowers. ,” he said.
Consequences of the refi boom
The Fed has made it clear that interest rates will rise in an attempt to control inflation, causing growls of desperation from mortgage professionals across the country, but should they?
In the first week of January 2021, the rate on a 30-year fixed-rate loan was at an all-time low of 2.65%, according to data from Freddie Mac. At the end of November 2021, rates reached 3.10%, marking an increase of 0.12% from the previous week. By the end of 2022, Redfin and Realtor.com forecast mortgage rates to hit around 3.6% for a 20-year fixed mortgage rate, “which ends up being substantial in the long run for the average homeowner,” he said. LaCentra said.
However, using the same facts, Kushi draws a more optimistic outlook, saying, While mortgage rates are expected to rise in 2022, the consensus still places them below 4%, which is very low from a point of view. historical. Continued wage growth will help increase household income, thereby increasing the purchasing power of housing. Additionally, posting office workers gives first-time home buyers the greatest opportunity to relocate to cheaper areas. ”
Shaw, on the other hand, reminds us that these rate increases are only estimates, however, mortgage professionals should be prepared to diversify their loan portfolios. “We will likely see mortgage rates follow higher in anticipation of these changes driven by the capital market forecast for MBS sales,” he said. Mortgage professionals can no longer seek to seize refinancing opportunities out of thin air, they will have to solve their clients’ problems and non-QMs must be part of their solution package. ”
The same goes for real estate investors looking to buy a property in the next year or so. For investors interested in leasing single-family homes, 2022 will be about diversification, said LaCentra. As we see rates fluctuate, investors will want to make sure that whatever they buy they are able to lock in and they are sure it’s a good decision in the long run.
As we have already seen over the past year, investors will be better off leaving major markets and focusing on single-family properties in more suburban areas. Cities like Youngstown, OH, Springhill, FL, Birmingham, AL, Cleveland, OH, Pueblo, CO and Buffalo, NY are all great examples of cities that should top the list for rental investors. With lower to moderate priced homes, higher appreciation rates, and low rental vacancy rates, these are the perfect places to buy a property that will create long-term wealth, added LaCentra.
While diversification and adoption of non-QM seems to be the only answer to this problem, it is not. When business begins to decline, whether due to market conditions or financing, now is the time for mortgage professionals to get smart.
“Higher loan amounts for government and conventional loans can be a huge plus as they now provide better opportunities for borrowers to access GSE programs without having to switch to specialist programs such as Jumbo or Non-. QM, Shaw said. These are now opening up new markets and new customers for mortgage professionals to review and market for refinancing, withdrawal and purchase options.
Regarding withdrawal, Shaw continued, Mortgage professionals and marketers will need to re-evaluate withdrawal patterns and monitor their data more frequently. As larger market segments become available with larger loan limits. high, appreciation may come under downward pressure It will be important to set expectations and know your markets.
Will demand continue to grow?
The pandemic reshuffle is expected to continue, our experts say, although some believe the areas of migration will change as the previously popular southern metropolitan areas become more expensive.
A recent report from Redfin showed how some of these affordable southern metropolitan areas are getting more expensive as residents from outside move in. got more bang for their buck when wealthy (and now remote workers) from San Francisco and New York City moved to the city.
As a result, Redfin Chief Economist Daryl Fairweather predicts that soaring house prices along the Sunbelt will eventually cause buyers to move to more affordable (rural) northern cities like Indianapolis, IN, Columbus. , OH and Harrisburg, PA.
Research shows that even before the pandemic, there was a movement from large subways to smaller ones, and from urban cores to suburbs and suburbs, Kushi said. “Migration to small metropolises and suburbs is expected to continue due to the lifestyle choices of millennials as they continue to own homeownership and the acceleration due to the pandemic of posted workers from the office.”
According to our Q3 First-Time Home Buyers Outlook report, cities like Buffalo, Pittsburgh or Oklahoma City offer first-time homebuyers the most homeownership opportunities because the power Median tenant purchase in these cities allows first-time home buyers to consider a greater choice of homes to buy, Kushi continued. You can’t buy what isn’t for sale in your own market, but you can move. ”
Kushi also acknowledges the struggle that millennial first-time buyers will face as the New Year approaches, saying, As they continue to age in their home buying years in 2022, they will be faced with a market with rapidly appreciating house prices, limited inventory, especially in the lower price segment and higher mortgage rates. Worse yet, first-time home buyers don’t have the equity from the sale of an existing home to bring to the closing table. As fundamentals support continued first-time homebuyers demand in 2022, these buyers will face an uphill battle if housing supply stays near all-time lows. You cannot buy what is not for sale.
On the investor side, LaCentra says cities in the south are full of opportunities, especially those looking to build long-term wealth. For investors looking to make money by tackling inventory issues and building new homes, southern cities such as Tampa and St. Petersburg, FL, Dallas, Ft. Worth and Austin, TX, Atlanta, GA and Raleigh, NC are ripe with development opportunities. Houses are in high demand in these parts of the country and still achievable compared to other parts of the country to be able to build and still make a substantial profit, even with the supply chain issues that builders face.