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2022 Real Estate Market Forecast - 2021 Recap

As the year draws to a close, there are encouraging signs that suggest the housing market will remain solid in the upcoming year. Rising homeowner equity, higher demand for second homes, and the improvement in investor sentiment are all good news that point to a promising 2022. Low mortgage rates expected for the year ahead should also help increase homeownership opportunities for buyers of all ethnic background. There are potential headwinds, nevertheless. Inflation will remain a concern in 2022 as long as supply constraints continue to be an issue, and the impact of Omicron to the economy is still an uncertainty.

Homeowner Equity Up Strong in Q321: Homeowners have seen their equity rose by 31.1% year-over-year in the third quarter of 2021, according to the latest CoreLogic Homeowner Equity Insights report. The total number of mortgaged residential properties with negative equity, consequently, decreased 28.9% from last quarter’s 1.6 million homes. With home price growth at the highest level in more than 45 years, equity gains hit a record high and allowed 70,000 properties to regain equity in the third quarter of 2021. California had the largest equity gain, with the average homeowner gaining $118,700 during the past year. The share of mortgage residential properties with negative equity in the state remained unchanged from last quarter at 0.8%, significantly below the 25% plus in the fourth quarter of 2009 during the Great Recession.

Vacation and Second Homes Still in High Demand: Demand for vacation homes or second homes remained elevated in 2021, as work-from-home policies solidified, and mortgage rates continued to stay low by historical standards. The share of vacation/second home sales climbed up to 6.6% - the highest level in nine years, as more buyers searched for more space and a healthier lifestyle. Despite an improvement in the pandemic situation, more employers began to adopt permanent remote working policies that allow employees to work away from the office. Many workers who have this flexibility choose to live in resort communities in search of more space and a healthier lifestyle.

Investment Buying Bounce Back but Still below Pre-Pandemic Levels: With the eviction moratorium lasting through the end of September 2021 for most areas in California, many real estate investors have been holding off on buying until there was more clarity to the rental housing market. As the economy started showing signs of a strong recovery earlier this year, some investors returned to the California market. The share of homes sold for investment purchases inched up to 9.5% in 2021, after dipping to a 19-year low 8% in 2020. Nearly three out of ten (29%) of the investment properties purchased were intended to be flipped for profit, the highest level since 2014 when home prices were significantly below current levels.

Non-white Home Buyers Make Up over Half of All Sales for the First Time: The share of non-white homebuyers continued to grow this year, and its share was more than half of all sales for the first time since 1995 when the survey started collecting the statistic. In 2021, more than two out of five homes sold were purchased by whites (45%), followed by Asians (19%), Latinos (18%), and Blacks (4%). Low costs of borrowing in recent years, along with employers adopting more flexible remote-working policies, offer an opportunity to many non-white homebuyers to achieve their American dream. Despite the overall improvement, there is still a lot that needs to be done to close the racial homeownership gap as the share of Latinos and Blacks continues to trail behind the share of the general population.

Inflation Hits a 39-Year High – Consumer prices surged more than expected, with inflation rising 6.8% from a year ago in November. Energy prices and used car/truck prices were major contributors to the jump in inflation, as both went up by more than 30% from a year ago. Strong consumer demand and supply chain bottlenecks remained the primary reasons that pushed up prices, and inflationary pressures have been hitting workers hard. Real average hourly earnings accounting for inflation, in fact, declined 1.9% on a year-over-year basis in the latest report. With inflation remaining stubbornly high, the Fed could announce an acceleration of its wind-down of asset purchases in the next meeting. While rates have been flat in the past few weeks, we could see some volatility before the end of the year.

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