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Realtor.com Was Wrong in Their Housing Forecast!

What’s up everyone

In todays video were going to take a look at realtor.coms 2022 housing forecast from the end of 2021 and compare it to their updated midyear 2022 forecast which just came out. Its quite startling to see just how wrong they were at the end of last year looking into the future, so stay tuned and then we’ll go deeper into the reality of what’s happening in the housing market today in July of 2022. 

So let’s just dive right in!

At the end of 2021, Realtor.com projected their housing forecast for 2022. They analyzed different data points from price appreciation to mortgage rates and a lot more in between. Just this week, they published their midyear 2022 forecast and, well, lets just say, they were WAY off.

Lets start with price appreciation. Their original forecast was the median sales price appreciation would go up 2.9% by the end of 2022. In their midyear update, they now project prices will appreciate 6.6%!

  • Going forward, home price growth cools, but it has remained hotter for longer than originally anticipated leading to an upwardly revised projection of 6.6% home price growth for 2022

Just to give some context, Mark Zandi of Moodys analytics projects that the housing correction will see year-over-year home price growth decelerate to 0% by this time next year.

In Zandi’s eyes, this “housing correction” is very different from a full-blown housing bust. Instead of crashing, Zandi says, we’ve entered into a period where home sales will fall significantly and housing inventory will rise significantly. 

He says that the Fed Reserves inflation fighting plan is causing some markets to reduce their prices by 5-10%.

In an article by Fortune, Lance Lambert writes that those 5% to 10% home price declines could quickly worsen if  rate-sensitive sectors, like real estate, ultimately pushes the U.S. economy into recession.  Zandi tells Fortune he expects national home prices to decline by around 5%. However, in America’s most overvalued housing markets, Zandi predicts a 15% to 20% home price decline.

In the next prediction by Realtor.com, at the end of 2021, they forecasted mortgage rates to average 3.3% throughout the year, 3.6% by the end of 2022.
 

Well, we’ve seen how this has turned out. In their midyear update, they predict mortgage rtes will average 5% throughout the year, 5.5% by years end. 

  • Mortgage rates have been revised upward to reflect the major shift in monetary policy and financial conditions over the last 6 months; in the second half of 2022, we expect a continued climb at a more modest pace, which means that rates hit 5.5% by year-end

This confuses me a little since rates have already been higher than 5.5%…

According to realtor.com, they expect that inflation will ease as demand responds to tighter financial conditions, but remain high enough to pressure the Fed to continue moving short term rates rapidly to neutral. Once we hit a growth- and inflation-neutral short-term rate, likely in late 2022, we expect the Fed to pause and assess the impact of its actions on the economy before deciding whether to hold or pursue additional hikes. Mortgage rates will likely continue to climb, but at a slower pace, as they’ve largely adjusted to anticipate the Fed’s hikes through the end of 2022.

I agree that most lenders have already included the projected Fed hikes in their present rates so rates should stabilize and could possibly go down a little in the next 6 months. Most of my lender friends feel like rates will stay around 5.5% depending on the profile of the buyer. If the buyer is putting more down and has stellar credit, their rate could be even better.

Lets move on to their next prediction.  At the end of 2021, Realtor.com forecasted existing home sales will be up 6.6% in 2022. In their midyear update, they now predict existing home sales will be DOWN 6.7%. They explain this change in the following way:

In 2022 we witnessed the early year housing frenzy give way to tough budget realities as rates hit decade-plus highs and home prices continued to surge, causing some buyers to postpone home buying plans in the face of higher costs. 

Home sales activity finished 2021 and started 2022 off better than previously expected, but cost challenges have caused us to revise our outlook for home sales down lower. We now expect home sales to slip 6.7% in 2022.

They say that they expect to see the biggest year over year weakness in home sales in what’s traditionally the heart of the summer selling season. As we move into cooler months and both buyers and sellers have an opportunity to recalibrate their expectations of the housing market, they expect to see somewhat greater transaction activity, but sales will still lag year-ago pace. 

Although they are forecasting a notable step down from 2021, home sales on par with these projections would mean that 2022 sales are the 2nd highest tally since 2007, trailing only 2021. 

Which leads us right into their next prediction. Inventory.

At the end of 2021, realtor.com forecasted Existing Home For-Sale Inventory to go up 0.3% in 2022. In their midyear update, they now forecast Existing Home For-Sale Inventory  to go up 15% by years end.

  • The number of homes for sale grows more than originally projected. The growth is driven by a combination of more sellers and a slowing home sales pace. 

They also site that they feel new construction will increase in 2022. 

With a housing market that is still undersupplied, the government has taken note, with the White House rolling out a plan to tackle the housing shortage, primarily by making it easier to permit and fund smaller, more affordable homes, which is expected to lead to more construction of these dwellings. 

“There are some creative ways of tackling the housing shortage. … Biden’s plan tries to make it easier to fund building smaller, more affordable units so they actually get built,” says Realtor.com Chief Economist Danielle Hale. However, “it’s unclear how much of a difference all of this will make, especially in the short term.”

We expect single-family housing starts to hit a new 16-year high in 2022, but rising costs and labor shortages will present challenges for builders to work around on top of waning optimism and top-line pressures as housing demand softens. 

While housing costs remain high, buyers are going to have to make tough choices about their budget priorities.

The number of homes for sale is expected to continue to grow, building on the turnaround begun in May.

More new listings entered the market in May than any other month since June 2019

As more homeowners look to make adjustments to fit changing personal needs and take advantage of favorable market conditions to access the significant amount of equity they have likely accumulated, home shoppers will have more choices. Take a look at this list of reasons why 2022 homeowners are planning to sell.

For buyers still in the market, shifting market conditions may make this fall–typically one of the best times of the year to buy a home–a particularly opportune one.

** Side note, according to realtor.com, in 2021, they said that “Nationally, the best time to buy a home is the week of October 3-9. “

In my market in the DC area, this is NOT true. Our strongest season is now in the Spring Market. It will be interesting to see if home sales pick up in October. 

Their next prediction is about Homeownership Rate. At the end of 2021, Realtor.com forecasted Homeownership Rate to be 65.8% in 2022. In their midyear update, they now forecast 65.6% so not much of a change here.

So, to sum it up, Realtor.com believes that Homeowners continue to be in an advantageous position, especially those who have owned for longer periods of time and accumulated significant equity in their homes. This is likely to bring out more sellers hoping to capitalize on favorable market conditions which will ultimately mean more competition and a re-balancing of the housing market away from the very seller-friendly tilt it has recently had. This will bode particularly well for seller-buyers who have been more frustrated with the lack of buying options.  

They go on to say This year, the return of seasonal trends and timing of mortgage rate increases are reinforcing each other, and they  expect the market will cool off notably as we move toward the end of the year. This means that homeowners contemplating a sale should consider acting sooner rather than later. 

They do emphasize that sellers should be very. Price conscious and don’t over price their house. “While the share of sellers having to reduce their asking price to find a buyer remains lower than pre-pandemic, it rose from one year ago in MarchApril, and May. “

According to Tabitha Mazzara, director of operations at Mortgage Bank of California, “If you’re waiting for prices to suddenly plummet to what they were in the past, you’re making a mistake. If you’re ready to buy, don’t wait because prices aren’t headed dramatically downwards to what our parents paid. Things might dip a bit, but there’s no cliff dive that’s going to happen.”

For me, the bottom line is we are seeing the market change as we speak. With the increase in mortgage rates, and the increase in home prices, buying a house has become unaffordable for some, especially the first time home buyers. 

For the rest of the buyers who are still in the market and are willing to buy even with the higher rates, because they know they can refinance if rates go down and they are planning on staying in the new home for a while, they are very sensitive to listing prices. If they feel the house is overpriced, they will wait for a price reduction rather than throwing money at any house that comes on the market.

Seller need to be very aware of this and price their house correctly to attract strong buyers. Ultimately the market will tell the seller if they are priced right in the first 2 weeks of being on the market. 

We have an old saying in real estate. On the market 10 days no showings. Overpriced. On the market 10 showings no offers. Over priced. 

If this happens, sellers need to reduce their price immediately otherwise they will be chasing the market which is never a good idea. 

What are your thoughts? 

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