Will The Housing Market Boom Or Bust In 2022?


As the spring selling season begins, people in the mortgage and real estate industries are speculating on whether 2022 will be a year of growth or the start of the end for a red-hot market that has favored sellers and forced up the price of housing in many parts of the country.

Numbers from the start of the year look promising for growth. On Tuesday, S&P Dow Jones Indices released the latest results for the S&P CoreLogic Case-Shiller Indices. A 19.2% annual gain was reported in January, up from 18.9% in December.

The 10-City Composite annual increase was 17.5%, up from 17.1% in December.

The 20-City Composite posted a 19.1% year-over-year gain, up from 18.6% in the previous month, according to information published about the results.

“Phoenix, Tampa, and Miami reported the highest year-over-year gains among the 20 cities in January. Phoenix led the way with a 32.6% year-over-year price increase, followed by Tampa with a 30.8% increase and Miami with a 28.1% increase. Sixteen of the 20 cities reported higher price increases in the year ending January 2022 versus the year ending December 2021,” the results said.

According to First American Financial Corporation’s Real House Price Index, homes are less affordable than they were a year ago, but they largely remain more affordable than at the peak of the 2006 housing boom.

The RHPI measures price changes for single-family properties adjusted for the impact of income and interest rate changes on consumer house-buying power. It serves as a measure of affordability.

“According to our house-buying power-adjusted RHPI, homes are 34 percent more affordable on average across all 50 markets than their respective RHPI peaks,” Mark Fleming, chief economist at First American, said in a press release.

“While the supply-demand imbalance in today’s housing market continues to fuel strong house price appreciation across the country, the dramatic increase in house-buying power relative to 2006 driven by lower mortgage rates and higher incomes has more than made up for it. In fact, in four cities homes are more than 50% more affordable today than at their prior RHPI peak,” Fleming said.

Affordability has improved the most since the prior peak in Washington, D.C. (53% more affordable from the peak), Baltimore (53%), Chicago (52%), Miami (50%), and Riverside, Calif. (48%).

Even the cities that have improved the least are somewhat more affordable than in April 2006. Those cities are Nashville, Tenn. (0.3%), Buffalo, New York (3%), Denver, Co. (9%), Kansas City, Mo. (12%), and Salt Lake City in Utah (15%).

On the down side, the Federal Reserve Bank of Dallas has released a statement by Jarod Coulter, Valerie Grossman, Enrique Martinez-Garcia, Peter C.B. Phillips, and Shuping Shi indicating real-time market monitoring finds signs of a brewing housing bubble in the United States.

The statement includes the following passage:

“An asset—in this case, housing—is in the primary expansionary phase of a bubble when price rises are out of step with market fundamentals. Rapid real house-price appreciation, such as that observed now, does not in itself signal a bubble. Shifts in disposable income, the cost of credit and access to it, supply disruptions, and rising labor and raw construction materials costs are among the economic reasons for sustained real house-price gains.

But real house prices can diverge from market fundamentals when there is widespread belief that today’s robust price increases will continue. If many buyers share this belief, purchases arising from a ‘fear of missing out’ can drive up prices and heighten expectations of strong house-price gains.

This self-fulfilling mechanism leads to price growth that may become exponential (or explosive), resulting in the housing market becoming progressively misaligned from fundamentals until investors become cautious, policymakers intervene, the flow of money into housing dries up and a housing correction or even a bust occurs.”

There are already analysts predicting home sales may drop 25% by the end of the summer.

In an article for Marketwatch.com, Jacob Passy reported that the chief economist and founder of the research consulting firm Pantheon Macroeconomics is predicting a dramatic fall in the price of home sales in 2022.

Ian Shepherdson pointed to mortgage demand dropping and the rise in rates, which have increased monthly mortgage payments by hundreds of dollars.

Freddie Mac reported that for the week of March 28, mortgage rates jumped to 4.67%.

Shepherdson warned that sellers may pull listings or decline to put their homes on the market as a result.

The potential risk of price declines depends on individual markets.

Real estate research firm CoreLogic has provided Fortune with the market risk calculation for 358 metropolitan areas. Only 13 markets have a 50% to 75% probability of declining home prices in the coming months.

Those 13 markets include Niles, Mich.; Lake Havasu City, Ariz.; Chico, Calif.; Lewiston, Maine; Modesto, Calif.; Muskegon, Mich.; Pittsfield, Mass.; Prescott, Ariz.; Worcester, Mass.; Bend, Ore.; Kalamazoo, Mich.; Merced, Calif.; and Springfield, Mass., according to an article by Lance Lambert.

Mortgage and credit experts warn that a combination of high inflation and the economic impacts of COVID are destroying the dreams of Americans who want to buy a home.

According to a LendingTree.com study, about 30 percent of Americans saw an increase in credit card debt over the last two years, driven primarily by inflation and loss of income.

For the study, 1,249 consumers were surveyed and the “tale of two pandemics” was revealed.

While 30 percent of respondents went deeper into debt, the same number in the two-year period reduced their card debt, according to the study.

About half of the people surveyed cited inflation and 34 percent cited income loss as the primary factor in driving them deeper into debt.

“Inflation has been such a massive story and placed such hardship on so many Americans that it makes sense that it would be at the top of the list,” said Matt Schulz, Chief Credit Analyst with LendingTree.

A recent Bankrate survey found that many American households are just one financial emergency away from taking on costly credit card debt.

The median income for U.S. households fell to $67,521 in 2020, a drop of $2,039, or 3%, from 2019, according to Bankrate’s report. They cited information released by the U.S. Census Bureau in September.

Adults between 45 and 54 years old remained the nation’s top earners with a median household income of $90,359. That is 3.2 percent less than in 2019, according to Bankrate.

A key to keeping the housing market red-hot despite these economic uncertainties is to keep sellers dreaming of buying up.

A Coldwell Banker survey found that 44% of Gen Z homeowners and 35% of Millenial homeowners are planning to sell their homes in the next 12 months.

Gen Z homeowners were categorized as ages 18 to 25 for the purposes of the survey. Millenial homeowners were between the ages of 26 and 41.

Coldwell Banker has launched its 2022 Seller Strategy, reinforced by the Dream ad campaign. That campaign is designed to get homeowners to dream about moving to a place they have always wanted to live.

“With so many Gen Zers and Millennials dreaming of home, we’ve revamped our website during our Dream campaign with the CB Estimate℠, Move Meter℠ and the Seller’s Assurance Program that will guarantee they’ve got the tools to sell their current home. Paired with the help of our outstanding agents and their innovative social media marketing skills, we guarantee they’ll be in the best hands for this spring selling season to get the most for their home and make the move into their dream home,” David Marine, CMO of Coldwell Banker Real Estate LLC, said in a statement.

During their March monthly update this week, leaders at the American Enterprise Institute’s Housing Center said rampant home price appreciation continues to rise.

In February, the preliminary national year-over-year gome price appreciation rate was 17%.

That is up from 16.4% in January and 11.8% from a year ago.

“The reality is that given the seller’s market, the rampant seller’s market that we have, that sees no sign of abating, every house that gets put on the market sells,” said Senior Fellow and Director Edward Pinto.

“How high can the prices go? That is the question,” Pinto added.

According to their data, metros in Forida and metros affected by California out-migration are seeing prices rise the most on the national scale.

Cape Coral, Fla.; North Port, Fla.; Phoeniz, Az.; Austin, Texas; and Tampa, Fla. topped the list of highest home price appreciation metros.

In the Northeast, prices for homes have increased dramatically as people move from more densely populated areas into smaller communities in New Hampshire and Massachusetts.

With remote and hybrid work a permanent option for employees in major metropolitan areas, sellers in smaller markets are getting top dollar for their houses, while buyers struggle to find homes for less than $400,000.

According to WMUR-TV’s Jennifer Crompton, the median selling price of a home in New Hampshire hit $405,000 last month.

On the Seacoast, prices are even higher. The seller of a newly listed home on Marcy Street in Portsmouth is asking $1,995,000 for a 2,210-square-foot, 3-bedroom, 2.5-bath house on a 3,049-square-foot-lot.

Anthony Previte is a realtor who is just starting out in the Seacoast market. He sees a disconnect between what average young buyers can afford and what is available on the market.

He said people his age are having a hard time accessing the money they need to obtain to secure a home.

“If I send them to the lenders, it’s like they go to die,” Previte said in an interview with The Mortgage Note. “It’s tough for young people and people using financing.”

Previte said a lack of inventory does not help. He is going into neighborhoods and introducing himself.

“I go to people’s houses and knock on their doors and I’ll say, ‘I’m in the area and see your neighbor’s house just sold for this amount and I’d really like to help you out,'” Previte said.

Scott Auen, Senior Vice President of Retail Lending at Cornerstone Bank in Southbridge, Mass., said in Worcester County they have less than one month supply of homes on the market.

This section of Massachusetts has also seen an influx of people moving from Boston and beyond.

In a healthy market, there is a four to six month supply, Auen said in an interview with The Mortgage Note.

“We do see people coming from out of state, believe it or not, from like California, to move into a less populated area in central Massachusetts. I look at my nieces and nephews. They work all over the place, and they work remote so it’s not hindered by where you work anymore,” Auen said.

Auen said he is concerned about the high prices of homes right now.

“I think definitely, values are at an all-time high. It’s almost unhealthy, the values of homes right now. And that’s the big question of when is that going to turn?” Auen said.

Typically when rates increase, that lessens competition and drives down prices, but that doesn’t seem to be the case this year.

“Even if rates increase, we don’t feel that is going to be enough to really significantly impact values in the short-term,” Auen said.

Auen said as bankers, they’re always trying to figure out what will happen next, but there are a lot of factors at play in 2022 with inflation, monetary policies, and the war in Ukraine.

All of those influence supply and demand in the housing market, Auen said.

Writer Gregory Bresiger contributed to this report.

Email story ideas to Editor Kimberley Haas: [email protected]