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Housing Market Forecast for the Rest of 2022

Housing Market Forecast for the Rest of 2022 [INFOGRAPHIC]

Some Highlights

The housing market is shifting away from the intensity of the past two years. Here’s what experts project for the remainder of 2022.
Home prices are forecast to rise more moderately than last year. Mortgage rates will respond to inflation, and home sales will be more in line with pre-pandemic years.
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How Forbearance Programs Changed The Housing Market

Why the Forbearance Program Changed the Housing Market

When the pandemic hit in 2020, many experts thought the housing market would crash. They feared job loss and economic uncertainty would lead to a wave of foreclosures similar to when the housing bubble burst over a decade ago. Thankfully, the forbearance program changed that. It provided much-needed relief for homeowners so a foreclosure crisis wouldn’t happen again. Here’s why forbearance worked.

Forbearance enabled nearly five million homeowners to get back on their feet in a time when having the security and protection of a home was more important than ever. Those in need were able to work with their banks and lenders to stay in their homes rather than go into foreclosure. Marina Walsh, Vice President of Industry Analysis at the Mortgage Bankers Association (MBA), notes:

“Most borrowers exiting forbearance are moving into either a loan modification, payment deferral, or a combination of the two workout options.”

As the graph below shows, with modification, deferral, and workout options in place, four out of every five homeowners in forbearance are either paid in full or are exiting with a plan. They’re able to stay in their homes.

What does this mean for the housing market?

Since so many people can stay in their homes and work out alternative options, there won’t be a wave of foreclosures coming to the market. And while rising slightly since the foreclosure moratorium was lifted this year, foreclosures today are still nowhere near the levels seen in the housing crisis.

Forbearance wasn’t the only game changer, either. Lending standards have improved significantly since the housing bubble burst, and that’s one more thing keeping foreclosure filings low. Today’s borrowers are much more qualified to pay their home loans such as installment loans.

And while the majority of homeowners are exiting the forbearance program with a plan, for those who still need to make a change due to financial hardship or other challenges, today’s record-level of equity is giving them the opportunity to sell their houses and avoid foreclosure altogether. Homeowners have options they just didn’t have in the housing crisis when so many people owed more on their mortgages than their homes were worth. Thanks to their equity and the current undersupply of homes on the market, homeowners can sell their houses, make a move, and not have to go through the foreclosure process that led to the housing market crash in 2008.

Thomas LaSalvia, Chief Economist with Moody’s Analytics, states:

“There’s some excess savings out there, over 2 trillion worth. . . . There are people that have ownership of those homes right now, that even in a downturn, they’d still likely be able to pay that mortgage and won’t have to hand over keys. And there won’t be a lot of those distressed sales that happened in the 2008 crisis.”

Bottom Line

The forbearance program was a game changer for homeowners in need. It’s one of the big reasons why we won’t see a wave of foreclosures coming to the market.

Are We in A Housing Bubble in 2022?

3 Graphs To Show This Isn’t a Housing Bubble

With all the headlines and buzz in the media, some consumers believe the market is in a housing bubble. As the housing market shifts, you may be wondering what’ll happen next. It’s only natural for concerns to creep in that it could be a repeat of what took place in 2008. The good news is, there’s concrete data to show why this is nothing like the last time.

There’s a Shortage of Homes on the Market Today, Not a Surplus

The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.

For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to tumble. Today, supply is growing, but there’s still a shortage of inventory available.

The graph below uses data from the National Association of Realtors (NAR) to show how this time compares to the crash. Today, unsold inventory sits at just a 3.0-months’ supply at the current sales pace.

3 Graphs To Show This Isn’t a Housing Bubble | MyKCM

One of the reasons inventory is still low is because of sustained underbuilding. When you couple that with ongoing buyer demand as millennials age into their peak homebuying years, it continues to put upward pressure on home prices. That limited supply compared to buyer demand is why experts forecast home prices won’t fall this time.

Mortgage Standards Were Much More Relaxed During the Crash

During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. The graph below showcases data on the Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association (MBA). The higher the number, the easier it is to get a mortgage.

Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home. Back then, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices.

Today, things are different, and purchasers face much higher standards from mortgage companies. Mark Fleming, Chief Economist at First American, says:

“Credit standards tightened in recent months due to increasing economic uncertainty and monetary policy tightening.”

Stricter standards, like there are today, help prevent a risk of a rash of foreclosures like there was last time.

The Foreclosure Volume Is Nothing Like It Was During the Crash

The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been on the way down since the crash because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help tell the story:

In addition, homeowners today are equity rich, not tapped out. In the run-up to the housing bubble, some homeowners were using their homes as personal ATMs. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a wave of distressed property listings (foreclosures and short sales), which sold at considerable discounts that lowered the value of other homes in the area.

Today, prices have risen nicely over the last few years, and that’s given homeowners an equity boost. According to Black Knight:

“In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower. . . .”

With the average home equity now standing at $207,000, homeowners are in a completely different position this time.

Bottom Line

If you’re worried we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your concerns. Concrete data and expert insights clearly show why this is nothing like the last time.

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Why This Housing Market Is Not a Bubble Ready To Pop

Homeownership has become a major element in achieving the American Dream. A recent report from the National Association of Realtors (NAR) finds that over 86% of buyers agree homeownership is still the American Dream.

Prior to the 1950s, less than half of the country owned their own home. However, after World War II, many returning veterans used the benefits afforded by the GI Bill to purchase a home. Since then, the percentage of homeowners throughout the country has increased to the current rate of 65.5%. That strong desire for homeownership has kept home values appreciating ever since. The graph below tracks home price appreciation since the end of World War II. Tropic Residential understands this enduring dream and is dedicated to helping buyers and investors navigate the evolving real estate market with confidence.

The graph shows the only time home values dropped significantly was during the housing boom and bust of 2006-2008. If you look at how prices spiked prior to 2006, it looks a bit like the current spike in prices over the past two years. That may lead some people to be concerned we’re about to see a similar fall in home values as we did when the bubble burst. To help alleviate those worries, let’s look at what happened last time and what’s happening today.

What Caused the Housing Crash 15 Years Ago?

Back in 2006, foreclosures flooded the market. That drove down home values dramatically. The two main reasons for the flood of foreclosures were:

Many purchasers were not truly qualified for the mortgage they obtained, which led to more homes turning into foreclosures.
A number of homeowners cashed in the equity on their homes. When prices dropped, they found themselves in an underwater situation (where the home was worth less than the mortgage on the house). Many of these homeowners walked away from their homes, leading to more foreclosures. This lowered neighboring home values even more.

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Why Today’s Real Estate Market Is Different

Here are two reasons today’s market is nothing like the one we experienced 15 years ago.

1. Today, Demand for Homeownership Is Real (Not Artificially Generated)

Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or home refinancing. Today, purchasers and those refinancing a home face much higher standards from mortgage companies.

Data from the Urban Institute shows the amount of risk banks were willing to take on then as compared to now.

There’s always risk when a bank loans money. However, leading up to the housing crash 15 years ago, lending institutions took on much greater risks in both the person and the mortgage product offered. That led to mass defaults, foreclosures, and falling prices.

Today, the demand for homeownership is real. It’s generated by a re-evaluation of the importance of home due to a worldwide pandemic. Additionally, lending standards are much stricter in the current lending environment. Purchasers can afford the mortgage they’re taking on, so there’s little concern about possible defaults. To maintain a comfortable living space in these homes, regular air conditioning maintenance is essential.

And if you’re worried about the number of people still in forbearance, you should know there’s no risk of that causing an upheaval in the housing market today. There won’t be a flood of foreclosures.

2. People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s

As mentioned above, when prices were rapidly escalating in the early 2000s, many thought it would never end. They started to borrow against the equity in their homes to finance new cars, boats, and vacations. When prices started to fall, many of these homeowners were underwater, leading some to abandon their homes. This increased the number of foreclosures.

Homeowners didn’t forget the lessons of the crash as prices skyrocketed over the last few years. Black Knight reports that tappable equity (the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio, or LTV) has more than doubled compared to 2006 ($4.6 trillion to $9.9 trillion).

The latest Homeowner Equity Insights report from CoreLogic reveals that the average homeowner gained $55,300 in home equity over the past year alone. Odeta Kushi, Deputy Chief Economist at First American, reports:

“Homeowners in Q4 2021 had an average of $307,000 in equity – a historic high.”

ATTOM Data Services also reveals that 41.9% of all mortgaged homes have at least 50% equity. These homeowners will not face an underwater situation even if prices dip slightly. Today, homeowners are much more cautious.

Bottom Line

The major reason for the housing crash 15 years ago was a tsunami of foreclosures. With much stricter mortgage standards and a historic level of homeowner equity, the fear of massive foreclosures impacting today’s market is not realistic.

Are Home Prices Continuing To Rise?

Many analysts projected home price appreciation would slow dramatically in the fall of 2021 and then continue to soften throughout 2022. So far, that hasn’t happened. The major price indices are all revealing ongoing double-digit price appreciation. Here’s a look at their reports on year-over-year price appreciation for December:

Federal Housing Finance Agency (FHFA): 17.6%
S&P Case-Shiller: 18.8%
CoreLogic: 18.5%

To show that they’re not seeing signs of softening, here’s a graph that gives the progression of all three indices for each month of 2021.

As the graph above reveals, last year, home price appreciation accelerated dramatically from January to July according to all three indices. Then, it began to decelerate in August when prices appreciated at a slower pace, but it didn’t decline. Many thought that would be the beginning of a rapid slowdown in the level of home price appreciation, but as the data shows, that wasn’t the case. Instead, prices began to level off for a few months before two of the three indices saw appreciation re-accelerate again in December.

To clarify, deceleration is not the same as depreciation. Acceleration means prices rise at a greater year-over-year pace than the previous month. Deceleration means home values continue to rise but at a slower pace of year-over-year appreciation. Depreciation means prices drop below current values. No one is forecasting that to happen.

In fact, the FHFA revealed that price appreciation accelerated in December in six of the nine regions it tracks. Case Shiller showed that appreciation accelerated in 15 of the 20 metros they report on. As Selma Hepp, Deputy Chief Economist at CoreLogic, explains:

“After some signs of slowing home price growth . . . monthly price growth re-accelerated again, indicating home buyers have not yet thrown in the towel.”

What Does This Mean for You?

Whether you’re a first-time purchaser or someone looking to sell your current house and buy a home that better fits your needs, waiting to decide what to do will cost you in two ways:

Mortgage rates are forecast to rise this year.
Home prices should continue to appreciate at double-digit levels for some time.

If you wait, rising mortgage rates and high home price appreciation will have a dramatic impact on your monthly mortgage payment.

Bottom Line

Maybe the best thing to do is listen to the advice of Len Kiefer, Deputy Chief Economist at Freddie Mac:

“If you’re thinking about waiting until next year and that maybe rates are higher, but you’ll get a deal on prices – well that’s risky. It may be more advantageous to purchase this year relative to waiting until 2023 at this time.”

Looking for a new home?

Also, check out our mini-series North Valley Spotlight

Checklist for Selling Your House

A Checklist for Selling Your House This Winter [INFOGRAPHIC]

Some Highlights

If you’re planning to sell your house this winter, you’ll want it to look its best inside and out.
Take the time and focus on tasks that make it inviting, show it’s cared for, and boost your curb appeal.
Let’s connect so you have an expert opinion on what to focus on, so it shows well and catches a buyer’s eye.

Looking for a new home?

Also, check out our mini-series North Valley Spotlight