Return to Erika's Website
It's been exactly 2 years since Covid hit the US on January 20, 2020. And our real estate market feels eerily similar to how our grocery store shelves look.
This is a picture my dad took after visiting our local Publix and Kroger yesterday. He couldn't find the crackers he wanted anywhere. As frustrating as it is, a lot of Buyers are feeling the same about a purchase that costs 250,000 times the price of crackers.
Here in Grassland, the real estate market never stopped -- not even around Christmas Day. But we did notice a bit of a speed bump here and across the country during December, as fewer Buyers and Sellers hit the market -- and the amount of Sellers was abruptly lower than the amount of Buyers.
It was a bit jolting, to put it bluntly, for a lot of shoppers and workers in the real estate industry. We had been so used to our real estate market heading full steam ahead for almost 2 years. There were no lulls or breaks since holiday season 2019. Then to all of a sudden return to a normal seasonal pattern in December 2021, after breaking more records in November, almost felt like something was wrong.
But just like food has disappeared off the store shelves faster than they can be restocked, homes for sale across the country in December just weren't there.
According to Redfin, "Lack of inventory in markets nationwide led to the biggest monthly sales drop since May 2020."
What Happened
November's busy market activity is largely reflected in December closings. We had 51 Grassland homes close in December, so you can see the upswing in December closings in the graph below. Most of these closings went Under Contract in November. But I will bet when January's closings are revealed next month, they'll reflect how much slower December felt in shopping and contract activity.
You can see by the graph I made above, that it hasn't been since 2006 when we've exceeded so many Grassland sales in December (likely from contracts in November). This is incredibly higher than our 20-year average of 39. This upward trend for November contracts kept pace with the country, putting 2021 on record for the most amount of US homes sold in at least 15 years by the time December closed out. But when it comes to activity in December, I suspect we saw fewer contracts which may lead to a fewer number of closings year-over-year in January. These numbers will be confirmed in February.
In fact, in Greater Williamson County, some of the numbers already reflect this. The amount of homes for sale at the end of December was down from December 2020. A difference of 325 compared to 426 homes for sale in Williamson County. That's a 24% decrease in the amount of homes for sale December-to-December. In Greater Nashville, the numbers are even larger. 3,624 vs 5,722 -- which is a 37% decrease in the number of homes for sale. One of my Benchmark colleagues, Steve Jolly, is the President of the Greater Nashville Realtors Association and says one of the biggest challenges moving into 2022 will be a continued lack of inventory. And I agree with him.
Buyers Are Still Out There
I believe the dip in December activity to have been seasonal. The decrease in Buyers and Sellers hitting the market around the holidays is a pattern we see in typical years. And though it was shocking to see it return for the first time in two years, it was actually a relief -- something I saw as a sign of comfort and promise that we may be starting a return to a more balanced market.
However, entering into 2022, January seems to have picked up where November left off. In fact, as far as the "feels like" level goes, Spring market (which typically begins here on January 2nd) already feels busier than it did in January 2021.
Sellers who have been sitting on the fence during Covid, enduring the Delta variant and Omicron, may be coming off the fence, hoping to get one last shot at high sales prices before interest rates decrease the Buyer pool. And as we've seen the past couple of years, there's comfort in numbers. The more Sellers who hit the market, the more Sellers will join them. An article on Realtor.com states, "Even in the face of high COVID-19 infection rates, many home sellers are still eager to list in the new year because, frankly, they've been waiting long enough."
At the same time, we still have more Buyers than we have homes for sale. Pent-up demand is still strong, as remarkable as that sounds. There are two factors I believe are fueling these Buyers, and will continue to do so:
- Interest rates are on the rise. So to maximize their buying power, they need to buy sooner than later.
- As interest rates, inflation and taxes continue to rise, the incentive for out-of-state Buyers to leave the high-cost-of-living states they're fleeing continues to be strong. And let's be honest, taxes never go down. So that pipeline will stay strong for a while.
It'll be interesting to see where we're sitting this time next year -- And if we continue to see our prices continue to rise with the demand. Redfin Chief Economist Daryl Fairweather says, "In January, I expect to see more Buyers and Sellers in the market. But demand will increase more than supply - pushing prices higher at the start of this year."
Those of you who regularly read my blogs and discuss my insights with me know I'm monitoring price increases, home demand and supply, and -- now with rising mortgage rates and inflation -- the possibility of a looming home price correction. You also know I'm not expecting a correction in prices for another few years. I do, however, believe our homes will slow down in the rate of value increase year-to-year.
A Change in Pace
There is a lot of chatter and data, predicting that our home price appreciation across the country will be in or around the 8% range for 2022. This means that if you live in a $780,000 home right now, which is the median price of a Grassland home sold in 2021, your home could be worth about $842,000 this time next year, if these predictions come true.
For perspective, here's what we've been seeing in Grassland:
- 2020: median home price was $615,000 (a 21% increase in appreciation between 2020 & 2021)
- 2019: median home price was $555,500 (a 10% increase in appreciation between 2019 & 2020)
As you can see, within the past couple of years, our home prices in Grassland have appreciated by about 30%. Dropping down to 2019 levels of appreciation, or even a bit lower, is still considered really strong.
Looking nationwide, Fannie Mae says Buyers seem to be more resistant to mortgage interest rate inflation than initially expected. But their economists expect the affordability of home prices across the country will become higher, and that could be why we see a slower home price growth than in the past 2 years. Fannie Mae expects home price growth to drop to 7.6% by the end of 2022, after seeing a nationwide peak of 18.5% during the third quarter of 2021.
“Our expectation of 7.6 percent growth in 2022 is still considerably higher than the average pace of 5.4 from 2012 to 2019,” Fannie Mae economists said.
Fannie Mae has taken it a step farther, predicting our national home price appreciation each quarter through the end of 2023.
In my opinion, this is pretty risky predicting so precisely this far out, as none of these numbers turn out to be spot on. And as we all learned in 2020, any one event can completely alter the way these numbers play out. But for what it's worth, Fannie Mae seems pretty confident we won't lose any value any time soon. And she's not alone.
A Slope is Not a Crash
So many of you seeing the Fannie Mae home price appreciation chart have noticed our appreciation rate predictions have a downward trend, and at this point, Fannie Mae has no upward swing in sight.
So many of you will translate this into "we're heading for a crash" because honestly, I think so many Buyers are hoping for that and homeowners are expecting that after these price explosions. I will never hope for anything negative in our economy after living through the Great Recession and seeing how it devastated so many businesses and families. But I'm also not ready to predict a crash because at this point, the data doesn't support it. Of those who really know and study the market, economic conditions, politics, analyze real estate, mortgages and work in the industry every single day, so few are even whispering about a crash for 2022, or even 2023. And lets be honest, predicting anything economically beyond 2 years from now is like putting together a 15-day weather forecast. The models change and anything can happen.
One of the main factors economists and analysts have leaned so heavily on in their more recent predictions of a crash, was when mortgage forbearances would come to roost. The idea was that everyone who deferred their mortgage payments during stay-home orders, would finally have to start paying at once and wouldn't be able to afford to. This would flood the market with foreclosures, providing more inventory, therefore lowering prices, much like what we saw in 2008. (For the record, I never supported this prediction because we all have so much equity in our homes now, that it would make more sense to sell at top dollar if you can't afford your home.)
But according to a new report from Attom Data Solutions, a provider of nationwide property data, the once-feared wave of mortgage defaults has largely failed to materialize. Foreclosure filings dropped 8% in December, and 2021 ended as the year with the fewest foreclosures on record. Rick Sharga, Executive Vice President at RealtyTrac, said in the report, "We probably won't see foreclosure activity back to normal levels before the end of 2022."
What to Watch Out For
Rising mortgage interest rates due to inflation may be our biggest hurdle in the 2022 housing market.
Depending how much more demand we have than supply will determine the rate at which our housing prices will continue to increase. That demand could be weakened as interest rates weaken buying power.
The Mortgage Bankers Association is predicting an abrupt rise in mortgage rates -- up to 4% in 2022, and as high as 4.3% in 2023. This is almost 2 percentage points higher than summer 2021. But in perspective, it's also about 2 points below the historical average of mortgage interest rates.
There is large belief among housing forecasters right now that regardless of our rate of appreciation -- these prices are here to stay. Basically, the prices we're seeing now for homes are permanent and are the lowest they'll be -- possibly ever. It makes sense if you consider our 30% increase in values just in the past two years, and you combine that with single-digit increases predicted for the foreseeable future. Even if there is a "crash," prices likely won't fall lower than where they were a year ago.
On top of that, there is large belief that our housing market is right where it was headed -- maybe just a few years earlier due to acceleration by the pandemic. OJO Labs explained in its latest housing study released Thursday, "It would have happened more evenly and more slowly. But looking ahead, it's hard to conclude anything other than housing costs are going to be permanently higher moving forward."
Though the housing market likely won't see the cool-off that we've experienced with our Tennessee weather lately, all signs are pointing to the end of the ridiculous rates of increases in our housing prices. Returing to the 2019 housing market (which we thought was amazing at the time!) will be as welcome as our kids returning to school after allll these snowdays we've had.
Don't get me wrong - it's been fun. But there's something comforting and refreshing about getting back to business the way it should be.
Return to Erika's Website
For questions about selling or buying a home, please reach out! I’m a Grassland area resident and I’m a Two-Time Platinum Award-Winning Williamson County REALTOR® ranking in the top 1.5% of Realtors in Williamson County. I am a Million-Dollar GUILD Member of the Luxury Home Marketing Institute, my market insights have been featured on TV and my success planted me on the front page of a December 2021 Nashville-area Magazine. But most importantly, I specialize in helping my friends and neighbors buy and sell homes.
Comments