Initially, my 2022 forecast was that the real estate market would follow the historical seasons — the first quarter would be slow, the second and third quarter robust, and the fourth quarter would be decent. But, based on the real estate demand over the holidays, I’ve drastically shifted my outlook. Aside from the week between Christmas and New Year’s day, the market pace was frenetic.
Properties were coming on the market and being shown for only a few days before agents shut it down to review multiple offers before the holidays. I was in three multiple offer situations the week before Christmas.
In my experience, when the market is strong over the holidays, it leads to a favorable first quarter and that momentum continues throughout the year. 2022 is clearly starting off strong, and I anticipate it will be a banner year like 2021.
Sphere of influence is where the business is
This year, I think the agents and teams with an existing book of business will get the lion’s share of listings and will do the majority of business. This trend is evident when you look at productive agents and teams in the industry.
For many, 2021 was their best year. Offhand, one of my colleagues doubled his business while another agent I know tripled his business. For newer agents, it will be harder to prospect as the Omicron surge is limiting face-to-face communication. This will force new agents to get even more creative. Innovative social media content, enticing email blasts and newsletters, and virtual tools like Zoom will become their battle ground to win business for the next quarter.
First-time homebuyers may suffer
It will be difficult for first-time homebuyers to compete in the entry-level market. This price point is the most competitive segment of the market. It has the largest pool of buyers and limited supply, so scenarios with 10+ offers will continue throughout 2022.
However, first time homebuyers with family money are in a much better position. If they can write offers that are all cash or waive their loan and appraisal contingency, they can offer favorable terms to help them get over the hump.
Agents serving first-time homebuyers will also face difficulty. It will be an uphill battle to win multiple offers when the odds are stacked against them. Shrewd buyer’s agents will have to decipher which buyers are not only prequalified but able to compete in a ruthless market. In addition, they will come up with alternative areas and property types where their clients can succeed.
People will come back to the cities
For those who left the city for the suburbs in the throes of COVID-19, they will be u-turning. In the second and third quarter of 2020, there was a mass exodus of wealthy people from cities that were dense and expensive. They left for more space, larger lots, or to avoid paying state income tax. We will see these people coming back this year. People want to live near restaurants, shops, and their office again, even if their work situation is a hybrid moving forward.
On the numbers side, inventory is low and that will continue. Despite this, there is demand so people will find a way to transact. 2021 is a great example of this. Everyone complained about inventory, yet sales volume was tremendous.
I anticipate prices will appreciate 3% to 5% and the number of sales will be similar to last year, so it’s possible that 2022 sets new records for residential sales volume.
In my opinion, interest rates are the most likely variable that could change our market. Real estate prices and interest rates have an inverse relationship. I recently read that the 30-year fixed interest rate is up more than 1/2% from a year ago and the highest since May 2020. Furthermore, the 10-year treasury went up 1/4% in the first week of 2022. Interest rates would have to go up by more than 1% in 2022 to chill the market, and I don’t think this will happen.
To sum it up, I think 2022 will be another record year. This year we will see a continuation of the momentum we saw in 2021 and sellers will continue to have the upper hand.
This article is part of our HousingWire 2022 forecast series. After the series wraps, join us on Feb. 8 for the HW+ Virtual 2022 Forecast Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the predictions for next year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.