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Waiting for a home price drop? Data suggests it will be a while

Waiting for a home price drop

Home sellers are still in a strong position as we near the end of 2021 and look to remain in that position during 2022 unless some significant economic downtown occurs, according to HousingWire.

Data sugggests that we will enter into a mature stage of the business cycle in 2023. 2022 will continue to be a year of recovery and growth coming out of the pandemic (Goldman Sachs is projecting 4% GDP growth). Labor and supply challenges are expected to improve but continue to be challenges in 2022. As this improves and the Fed continues to pull back on asset purchases and raise interest rates, the inflationary environment should improve.

Homeowner balance sheets are strong, meaning they have gained significant equity over the past year. U.S. homeowner equity has soared to over $23 trillion. Many homeowners have refinanced and their debt-to-income ratios are strong with mortgage payments as a percentage of income at all-time lows. Compared to the mortgage crisis, new homeowners are well financed under tighter lending guidelines and have come in with large down payments.

Inventory of homes available for sale still remains well below a balanced market of 4-6 months of supply. The combination of millenials entering into their prime buying years, homeowners staying longer in their homes (now at 10 years on average), people aging longer in place, and new home building not keeping pace, these factors have caused a perfect storm for an inventory crisis that experts project will take a couple years to correct itself.

Buyer demand continues to remain strong even as interest rates are expected to increase from current levels of 3% to 3.3-3.7% this next year based on projections by Fannie Mae, Freddie Mac, NAR, and MBA. This is still cheap money relative to historical interest rates. Most experts project modest single digit price increases in 2022, it will not be another 2021 as many would-be buyers have been priced out of the market or forced to look at smaller homes. As interest rates increase, buyers will not be able to afford as much house, so there will be less demand.

No one has a crystal ball on what the market will do and that’s why I pay attention to the market data to analyze when the market may be in for a shift. For now, sellers remain in the driver seat, but not to the tune of 2021.

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