What a year!! We've often described the spring market of 2021 as "just plain stupid". It was! It was a market filled with questionable decisions by buyers and agents, with sellers reaping the benefits. If you bought this year, you may be thinking hey Mark and Stacie, did we make a mistake? Well to answer that question, lets dig into what drove the crazy 2021 market and what the outlook is for 2022.
SPRING 2021 - The Perfect Storm!
Four factors came together to create the frenzy we saw last Spring.
Continued Record Low Housing Inventory. We saw fewer homes coming up for sale compared to 2019 and 2020, When a property came on the market it was gone in a few days and sometimes within hours.
Extremely High Demand. What is driving this? The Millennial generation, which is the largest generation in US history, is in their prime buying years. The front end of the generation (39 years old) is ready to buy their second home and the largest portion of the generation is ready to buy their first. Millennials were born from 1982 - 2002.
Historically Low Interest Rates. Interest rates in the first part of last year were as low as 2.75% raising affordability.
A Backlog of Transactions that may have taken place in 2020 but held off buying until 2021 due to the pandemic.
When you look at the stats for the year, it does not reflect what happened in the spring which drove housing prices to double digit increases in value over 2020. As of late November, new listings for 2021 were down only 0.4% from last year and pending sales were up only 1.4%. However, if you look at just the months of March, April and May pending sales were up 12.9%, 34.9% and 16.6% respectively. What's not captured in these numbers is the number of buyers that bid on properties but did not get them due to multiple offers. We were finding that from February to the end of May there were 10 to 50 offers on each house we saw and yes, I did say 50! It has become an urban legend among real estate agents, but we did end up in multiple offers on a house that had 50 offers. Buyers were waiving inspections and writing in $20,000+ appraisal clauses (agreeing to pay an additional $20,000 down if the appraisal came in low) to get their offer accepted!
SUMMER/FALL 2021 - A Different Story!
Starting towards the end of July, we began seeing houses sit on the market a little longer. If they went in multiple offers it was less than 5 offers, inspections were common, and the appraisal clauses went away. Later in the fall, we even saw price drops fairly common again. Whether this was due to buyer fatigue, the buyer pool drying up because they all bought in the spring, or price increases driving buyers out of the market is unknown. It was likely a combination of all three factors that slowed the fall market.
"If I bought in 2021 was I lucky enough
To buy at the peak, before the bubble bursts?"
(Said in a sarcastic voice)
or
"If I plan to sell, did I miss the peak?"
(Insert sad face emoji)
No, not necessarily. For the most part, the prognosticators all agree that 2022 will not be as frenzied as 2021, but it should balance out a bit. Most of the factors that lead to the perfect storm in the spring of 2021, will still be in place keeping the market tilted in the seller's favor.
From the demand side of the equation, the Millennial group still has a large number of buyers moving into their first home buying years. In addition, at some point soon, the largest part of Millennials will be ready to move up, due to increased income or family growth. This group will be a source of demand for several years to come.
As for the supply side, Inventory is still sloping downward. Some have said that it will be another 5 to 10 years before the building industry can create enough new inventory to meet demand and get us out of this shortage. These two factors should keep us in an appreciating market, but most believe not in the double digits. Predictions range from 2%-5% increases in the coming year vs. the 15%-20% increases we saw this year.
What is going to slow it down? Interest rates have already started to increase and predictions for 2022 suggest they will increase between .5% to 1.25%. Now, know that this means interest rates will be between 3.75% to 4.5% which is still pretty darn good! However, combining higher interest rates with the increased cost of housing and a lag in wage increases, will put pressure on the market and likely push some buyers out of the market entirely.
In a Nutshell, 2021 was crazy, and 2022 will be less crazy but still good for sellers and at the same time better for buyers (maybe). Buyers, you did not make a mistake. Though the market will likely balance out a bit, it will still be an increasing market, so your home's value should be safe for 2022 and hopefully for years to come. Sellers, you did not miss out. 2022 should still be good but don't expect 10 offers, $50,000 over asking. Although, from what we have seen so far, buyers are still willing to waive inspections, offer up those appraisal clauses and in some cases go ridiculously over asking price just to win a home.