Predictions are fun. Mostly because some topics, like the real estate industry’s trajectory for 2022, are impossible to predict. Though I did pretty well last year (how’s that for a humble brag?), let’s saddle up for another round of Crazy Uncle Keith’s predictions for the new year.
Affordability: The perfect storm, and not the fun kind. For this, I have three predictions in mind.
- Inventory will remain tight. Yes, there will be more than last year, but there was so little last year that it will still be a very competitive market.
- Property values will rise. Due to the still tight inventory and still high demand (more on that in a minute) property values will rise. However, nothing like they have the last few years. Read this next sentence closely: you’ll see a decrease in the rate of increase, which will be reported like a downturn. What I mean by this is instead of 20% appreciation, we’ll see a much more normalized high-single-digit appreciation, and this will be reported like property values have actually gone down. Thanks, normal media.
- Rates will rise. I predicted that rates would rise in 2021 (and they did) and they’re going to go up more in 2022. I promise there will be a time a few years from now where people talk about their interest rates like seeing a bigfoot. No one will believe there was a time where rates were that low. Maybe we can even get some grainy hard-to-see photos of our mortgage statements like those bigfoot pictures we see sometimes.
These three things in conjunction will create a less affordable real estate market, but nowhere near the pace of change we’ve had the last few years which is a good thing.
Lenders get creative, again: The biggest impact on affordability is downpayment and payment (duh). When we hit the slowdown last time, we saw lenders get creative. Like modern-art-splatter-paintings creative. We had no money down loans, with no employment or income verification, and you could “pick a payment” and actually pay less than you owed. Shocker, that didn’t work out. I don’t think we’ll head back to that level of crazy town, but we’re already seeing “bank statement” loans for small business owners and the like. Since banks know rates are at historic lows, but don’t want to make the same mistakes they did in the past, I think you’ll see the following:
- More and more low downpayment loans. Things that will allow people to buy property with less cash out of pocket, but it won’t make it to 100% financing in 2022.
- Great deals on five- to seven-year adjustable rate mortgages. These mortgages are fixed for the first five to seven years and then they adjust. Banks don’t want the whole world locking into rates on 30 year fixes… that would crater the refinance market (which it pretty much already has).
There is no secret here. Banks make money by lending money. They’ve enjoyed the strongest refinance run in memory and that is going to drop off steeply. Banks will get more creative in an effort to make buying property more accessible, they need the loan volume.
Buyer demand will slow: Just not enough to tilt the market down. I am seeing some household formation numbers that have me paying attention to the demand side of the equation, but I think we’re five to 10 years out from that rearing its head. The demand shift now will be due to high prices. It’s like that old adage, “The cure for high prices is… well… high prices,” meaning at some price point people back away. We have seen that and will see more of it in 2022. This will be the biggest part of the easing of appreciation rates for real estate.
Metaverse is a thing: Some companies will start offering “real estate like services” for people wanting to buy property in the Metaverse. I am sure I will write more about this in 2022, but people will want to own their own little slice of the Metaverse. It will be companies and early adopters, of course. It will in no way be mainstream and old guys like me (I’m 50) are going to be looking at it with a confused puppy face saying, “I don’t get it, you paid $2.5m for fake real estate?” However, I am sure the first time we used dirt to fill in a swamp to make “more land” some 50 year old was looking at them saying, “that’ll never work.”
Imagine this: Pick your favorite hobby or sports team and imagine there was a hangout spot online where you could just “be” with like-minded people. How many of us 15 years ago would have said we’d be staring at our phones, “talking” to people all over the country, and seeing what they had for breakfast? And Pavlovianly thinking… is the Metaverse the next big thing? Maybe, but the trend will start in earnest in 2022.
Ok, so there ya go. Markets are going to slow, but it won’t be the end of days. Bankers are going to bank, and we’re going to buy fake properties. How’s that for a rundown?