Will we see a housing market crash in 2022? What will appreciation and interest rates look like? Supply and Demand? I go over all this in my annual housing market forecast for Orange County. Check out the video above and subscribe to my YouTube channel to stay up to date on everything surrounding the Orange County Housing Market.
Don't have time to watch the video and want a quick summary instead? Let's go over some of the key points briefly.
Current Market
Supply: Supply is at an all time low right now and will continue to drop over the next few weeks as we approach the new year. We will be starting off 2022 with the lowest supply of homes in Orange County(and Southern California in general) on record.
Demand: Demand is slowly dropping as well but not at it's normal rate. Low interest rates are keeping buyers in the market this holiday season.
Interest Rates: are still hovering right around 3.1% as of today.
Days on Market: Currently the average day on market is 21 days. One of the lowest readings ever. We are going to finish the year in an extremely hot seller's market. Anything that is priced correctly in Orange County under 1.5 million dollars is typically going into escrow within 2 weeks.
2022 Forecast
Demand: Demand will remain strong next year due to three main factors
1) The largest demographic patch ever in the US, the Millennials, are reaching peak home buying years. They have paid down debt and saved money during the pandemic and as they start to expand their families they are looking for a place to call home.
2) Interest rates are still hovering around all time lows and although they are predicted to slightly rise next year, the increase will not be enough to turn away many buyers.
3) Institutional investors are buying up property left and right as a hedge against inflation. They have purchased a lot of property in 2021 and there is no slow down in sight for them right now.
Supply: Supply will likely remain low for the foreseeable future due to a few reasons:
1) People are not moving as much as they used to and there are a few reasons for this. Instead of downsizing when their kids move out, parents are keeping their larger homes and not placing them on the market. On top of that, more and more multi-generational households are forming every year keeping many people that might have downsized out of the market as well. Also, over the last 2 years many homeowners have refinanced their homes giving them one more financial reason not to leave, and finally, homeowners that have been thinking of moving have been scared to get their homes on the market because they are afraid they won't be able to find somewhere else to go with inventory being at historic lows.
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2) New home developers have been under building homes for over 15 years now. This is one of the main factors driving the lack of inventory all over the US. After the housing crash, home builders became cautious and due to that, we are now missing millions of new homes around the US.
Interest Rates: All of the leading experts in housing economics believe we will see interest rates continue to increase next year. The biggest questions right now is how much. With inflation now showing that it's less transitory we can expect the Fed to move more aggressively to increase rates sooner, and although the Fed rates don't have a direct connection to a 30-year fixed mortgage, eventually it will trickle down and start impacting them. As of now experts as well as myself are predicting somewhere around 3.5-3.7% interest rates by the end of next year.
Appreciation: Right now, the leading housing economic experts are predicting an average of about 5.1% appreciation next year for the US due to the low supply and high demand. In Orange County, we typically see higher than average appreciation so I am predicting we will see somewhere between 6-8% appreciation by the end of 2022.
Risks: There will always be countless risks to the housing market but here are the top five I talk about in the video, starting from the least risky to the most:
1) Foreclosure crisis - unlikely
2) New covid restrictions - unlikely
3) Stock market crash - possible
4) Panic by homeowners thinking we have reached the top of the market -possible
5) Interest rates - biggest risk to watch out for
To get more details on each, check out the video above
Recommendations:
Sellers: There is a very good chance that your home will be worth more by the end of next year than it is today. However, due to some of the risks above, if you are thinking of selling I would recommend planning on selling during the first half of the year if possible. Due to the current supply and demand curves, I am projecting that the large majority of appreciation for 2022 will happen in the first 6 months of the year when demand is the highest and interest rates are still low. As rates increase demand will start to drop as buyers are more sensitive than ever to any increase in interest rates due to the already high housing prices we are currently seeing in the market.
Buyers: Unfortunately there is no great news here for you. The biggest take away if you are thinking about buying a home in 2022 is the sooner you do it the better off you will most likely be. With rates and appreciation predicted to rise by the end of next year not only will homes continue to increase in price but your monthly mortgage will as well for the same priced home due to a likely increase in interest rates. Talk to your lender and get that pre-approval letter ready to go as inventory will most likely begin to increase during the second and third week of January and the faster you can act, the better chance you will have of securing your new home.
Final Thoughts: When I talk to my buyer and seller clients the one thing I try to stress is that they shouldn't let predictions make their real estate decisions, they are, after all, just predictions and I could be wrong. I try to use all the data that is available to me to help guide you when buying a home but ultimately your life circumstances, finances, and goals should be what is driving your real estate decisions. If you can afford the monthly payments, can buy the type of home you want, and plan for the long term any swings up and down in prices will most likely ultimately not matter as real estate has always gone up over the long term. Also, if you are thinking of buying or selling a home next year and want to have an honest no pressure conversation about your situation and what might be best for you, please don't hesitate to reach out to me now so we can get a plan together on what you need to do to reach your real estate goals. All of my contact info is at the bottom of this email.
