On Real Estate & More – February 2022

Although everyone hoped COVID-19 would be a faded memory by now and that the economy would have recovered, this has not been the case, and the pandemic’s influence on the economy is still being felt. Although it is rebounding, COVID continues to impact economic growth and many economists expect that to continue through this spring—if not a little longer.

However, the U.S. housing market has been a beacon of hope during the pandemic; over six million homes sold in 2021, the most homes ever sold in a single year. Windermere’s Chief Economist Matthew Gardener does not foresee this level increasing in 2022—mainly due to ongoing supply limitations as well as rising affordability issues, and he therefore forecasts sales to pull back slightly this year.

With such an active market, home prices rose nationally 19% in 2021. This pace of appreciation has never been seen before. Economists find this pace of growth to be unsustainable and expect the market to start to gradually slow down this year. There are three major reasons why the pace of growth is expected to slow: housing affordability, rising mortgage rates and supply will all influence the slowdown in sales and price growth.

Mortgage rates are anticipated to continue to slowly increase but still end 2022 below 4%—very low by historic standards given that the long-term average for a conventional 30-year mortgage is approximately 7 1/2%. As rates increase, that starts to compress price growth as it puts a lower ceiling on how much a buyer can afford to pay for a home.

Additional housing supply should also serve to slow growth somewhat in existing home prices and sales. The number of homes under construction has been growing significantly over the last 18 months. Windermere’s economist anticipates more than a million homes to start construction in 2022—continuing the trend that started in mid-2020.

It is likely the housing market will start to move towards some sort of balance this year, but Windermere’s economist projects it will remain out of equilibrium until at least 2023.

And to answer a question that has been asked continuously, economists do not see a housing bubble forming or have major concerns about homeowners currently in forbearance. Housing affordability will have a significant impact on the millennial generation, many of whom are thinking about settling down and buying their first home. It is getting increasingly difficult for many of them to be able to afford to buy their first home because of the dramatic price increases.

COVID-19 caused an unparalleled shock to the US economy and the variants have impacted the speed of our recovery. Demand for housing remains remarkably resilient and, in our region, the demand has been affected with the “work from home” movement that has been gaining momentum. It will be interesting to see how this impacts not just demand, but where these buyers will ultimately choose to live.