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A look at possible real estate trends in 2022

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If only we could foretell the future, we’d have bought Apple stock at the start of the pandemic.

While we can’t look forward with that degree of certainty, Ilyce had some interesting conversations with real estate experts and industry observers at the recent National Association of Real Estate Editors conference about what real estate trends might take over the headlines in 2022.

If you’re thinking about buying, selling or investing in residential real estate next year, keep these trends in mind:

Trend 1: iBuyers are evolving.

iBuyers are real estate companies that allow consumers to basically buy and sell on demand. They will buy your home for a price that its algorithms say is correct, allowing you the freedom of making a non-contingent or cash-like offer at will.

But over time, some iBuyers have shifted their business models. Knock began as a traditional iBuyer, but over the past two years has evolved into a mortgage lender. They’ll preapprove you for a mortgage, and provide you with a bridge loan for the down payment, allowing you to buy your new home first. Then, they will help you get your home prepped and staged to sell. And, if necessary, they’ll buy your home if no one else will. Something Knock CEO/co-founder Sean Black said only has happened a handful of times.

Of course, just because you call yourself a real estate technology company, also known as “prop-tech,” doesn’t mean you always get it right. Zillow shut down its iBuyer division, Zillow Offers, at the beginning of November, acknowledging a potential loss of hundreds of millions of dollars, and said it was cutting its workforce by 25%.

Trend 2: Interest rates are rising (this time, for real).

Since the Great Recession, mortgage industry observers and economists have annually foretold the rising of interest rates. In 2010, the 30-year mortgage interest rates were around 4.69% but fell to the mid-3% range by 2012, according to Rocket Mortgage and mostly stayed there. At the end of 2018 and the beginning of 2019, mortgage rates hit 5.34% for a brief moment in time.

But they quickly declined, and in January 2020, mortgage rates were back at around 3.7%. And, then COVID-19 hit, the Federal Reserve Bank lowered the federal funds rate to between 0 to 0.25%, and mortgage interest rates dropped below 3%.

What happens now? Lawrence Yun, chief economist of the National Association of Realtors and Mike Fratantoni, chief economist of the Mortgage Bankers Association, agree that interest rates are scheduled to rise. And, Jerome Powell’s recent pronouncement that the Federal Reserve will look to raise the federal funds rate three times in 2022, while phasing out its bond-buying program, make it likely that mortgage rates will rise.

If Omicron (and future COVID-19 variants) doesn’t require more federal intervention, Yun expects to see 30-year mortgage interest rates of 3.5% in 2022. In the meantime, lenders will be laying off more loan officers and staff as refinancings dwindle. They’re hoping the purchase mortgage market stays red hot.

Trend 3: Millennial and Gen Z home buyers may find buying is unaffordable.

If interest rates rise much, Millennials and Gen Z homebuyers will find it increasingly unaffordable to purchase their first home. And Millennials account for the majority of home buyers at the moment.

U.S. homes appreciated at an annual rate of 18% in October, according to CoreLogic, which was the highest level recorded in the 45-year history of the index. If you were looking to buy a single-family home, those appreciated at a rate of 19.5%, another record high.

That sort of growth, coming on the back of several years of double-digit price appreciation, is unsustainable. Since home prices are closely tied to income, something has to change: either people will have to earn more money, interest rates will have to stay low, or home prices will have to come down to get everything back in balance.

In the meantime, the U.S. is about 5.24 million homes short (rentals, townhomes, condos, and single-family detached houses) and builders are focused on higher end developments. After all, if you’ll get the same profit out of a million-dollar house as in building three or four $250,000 homes, which would you choose?

In our next column, we’ll look at a few more real estate trends that are starting to bloom.

(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)

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