WELL, HERE WE ARE. 2022. A YEAR WHERE ANYTHING CAN HAPPEN AND LIKELY WILL.

Last year was literally a year for the record books. We saw homes selling for 10-20% over their list price, sight-unseen offers, inspections were thrown out the window, and people offered their firstborn child to even be considered in the running to get into the home they felt they “needed”. Well, most of that happened anyway. I hope you all retained your offspring.

The frenzied real estate market was spurred due to one major event. Covid. The idea of what home is changed drastically. It was now your office, your gym, your movie theater, it was your safe space, your semblance of freedom in a world of unknowns. This sparked families who felt they needed more space to throw caution to the wind to find a home that could solve their current and possible future issues we were experiencing.

WILL 2022 BE MORE OF THE SAME?

I say “Yes, but slightly tamer”. Home prices in 2021 peaked at an unbelievable 19% appreciation but fell to 11% by the end of the year. Most analysts are estimating that we will see appreciation between 6-8% in 2022. Some are thinking nationwide we will slow down to closer to 4-5%.

We started 2021 with the median sale price of single-family homes at $315,000. The market peaked at $375,000 and has dropped to $348,500 as of Dec. 2021. I expect to see the median sale price of single-family homes reaching $400,000 this summer. This would be about 13% appreciation from where we stand today. The Twin Cities will come down from the peak and should end the year between 8-9%.

The reason I expect to see prices increase more than the national analysts are predicting is simply due to supply. As of writing this, we are currently at 15 days of supply in the Twin Cities. With a similar buyer demand this year to what we have experienced the past two years there will be continued competition for homes that will drive prices higher and higher.

INVENTORY ISSUES

There is no end in sight for our current inventory issue and there are a few main reasons for this. From 1950 to 2009 we have built on average 24 Million homes in the US each decade. From 2010 to 2019 we only built 5.8 Million! With the current supply shortages, labor shortages, and another recent spike in lumber prices, new home construction cannot keep pace with the current demand. Essentially we cannot build our way out of this any time in the next 6-7 years.

SO WHAT DOES THIS MEAN?

Homeowners today have more equity in their homes than ever before. According to a recent report from the data firm Black Knight, the average U.S. homeowner currently has $153,000 in home equity. We are seeing more and more current homeowners keep their current home as a rental investment property when purchasing a new home. Homeowners are also taking out more lines of credit with their equity to purchase investment properties causing further shortages in supply. Lastly, add in the fact that many homeowners are simply scared to sell their homes in fear of having to settle on a home they do not truly like. These along with several other smaller factors have created a housing market, unlike anything we have seen in history.

RISING INTEREST RATES

The Fed is planning on several rate hikes this year, but it is unlikely this will do much of anything to help with the supply issues. After all, no one wakes up in the morning and decides to buy a home because of interest rates alone. This will price some buyers out of the market due to the rise in prices and overall cost of homeownership, but the impact will be small.

Overall we expect to see another frenzied spring and summer market with a slowdown in the 3rd quarter to a slightly more balanced housing market. Are we in a bubble? No, an economic bubble is a situation in which asset prices are much higher than the underlying fundamentals can reasonably justify. Home prices still have plenty of upside.

How long before we see a housing correction? In my opinion, we will have at least another 7-9 years of a stable housing market due to all of the factors previously outlined. If we see even a small 4-5% yearly appreciation over the next 5 years, the average homeowner will have more than enough equity to weather any storm that could come.