Housing Market Predictions 2022 | Housing Market 2021
Dusting off my Econ degree from college, let’s talk which way the market indicators are pointing. We’ll take on each of the indicators, compared to the 2000's recession, which we helped hundreds of people through, and the thing was the biggest indicator right before the huge price drop in home prices in the 2007-2012 recession.
There are two main things: Supply and Demand of houses, and Affordability.
Supply of houses in California is out of whack. It’s a Seller’s market – when a Seller puts a home on the market at a price that is in the range of value for that home, and 15 or 25 buyers make offers over the asking price and appraisals are coming in low.
On a basic level, that means there are not enough houses available for the number of people wanting to buy a home. The population needs thousands more homes to be built to accommodate the vast population. New home builders are trying to meet that demand, with thousands of new home starts. b. So builders are trying to meet the demand, but their need for the basic materials to build a homea home. And THAT demand has driven up the price of the basic materials like LUMBER – I. A May 5, 2021, article in fortune says prices jumped 280% since the pandemic began due to the demand from home builders. That will increase the price to build a home, so that will be passed along to the buyer – IF THE BUILDER CAN PASS IT ALONG. RIGHT NOW, the demand for new homes has been so high that builders have still been able to pass along increased materials prices in higher home prices. Affordability. Families need homes, and they need to be able to handle the monthly payment for the home! This involves the PRICE of the home in real current dollars and also the cost of money for those who have to get a loan. Prices in real dollars right now have surged. Those new homes in the Toll Brothers’ Rolling Hills Country Club are pricing in the $4m range and add into the $5 millions once upgrades are added. Homes in the Inland Empire where we’ve helped a lot of families buy near Military Bases have surged in pricing over $100,000 to $200,000 more than they were selling for in the last couple years.
That other factor is the cost of the money for those who have to get a loan. i. Let’s talk about an easy RULE OF THUMB for figuring out what a monthly payment on a home will be: it’s about $600/mo for every $100K borrowed. So on a $500,000 loan, that is $3000/mo and on a $600,000 loan, that would be $3500/mo and so on. So note the examples I used: $500,000 and $600,000. Just about a year ago, I would have picked examples of $400,000 and $500,000 to get a three or four bedroom home in the Inland area of California, and those prices moved up about $100,000.
You’re thinking, “I know! But this leads us to that big factor I saw shut down the similar seller’s market right before the recession in the late 2000’s: what do families have to earn to afford that payment?
I’ve done hundreds of loans and am doing loans. And right now, the monthly payments are getting higher and higher. Some of the families feel they simply do not make enough to cover that monthly payment and figure to rent – even though rents are high – until the price to buy comes down. When enough families make this decision, buyers leave the market, and sellers start getting no offers at the current asking price.
This happened in the Recession in 2006, when buyers collectively looked at prices that had risen a couple hundred thousand dollars in a couple years and went quiet for months. For sale signs popped up in a lot of yards to sell because life keeps happening making homeowners need to sell, but there were no buyers at the higher prices.
So what are earlier indicators of this? When we see more houses on the market and far fewer buyer offers. When buyers’ offers are just at the asking price, and then when offers are below. And then when offers stop.
No one can tell you when that will happen, but you can watch for the signs: this week, agents in our office said they felt there were more homes coming on the market than has been in the past year. I noticed in the Westvale neighborhood I watch on the Palos Verdes Peninsula, there are two homes actively for sale instead of zero. Time will tell.
That being said, are investors still in this market with cash at these high prices? Yes. Are many families feeling fine about these housing payments with interest rates still historically low? Yes. So we don’t seem to have hit the high yet.
I plan to do a video soon on what happens when you’ve bought real estate at the height of the market, and the market goes down. You might be surprised how it can actually turn out just fine or great! But for now, you might want to go see my video on that great Westvale neighborhood where pricing is closer to $1million than $2m - for fixers uppers. Questions? Call/Text/Email me!