“Are we in a bubble?” Home sales and price growth to slow in 2022, experts say

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December 10, 2021
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The country’s housing market is expected to cool in 2022, as mortgage rates tick up and inventory grows, a panel of experts said at the National Association of Real Estate Editors conference on Thursday.

Home sales and prices are still expected to rise, but that growth will likely be much less than in 2021, CoreLogic Chief Economist Frank Nothaft, National Association of Realtors Chief Economist Lawrence Yun, and John Worth, executive vice president for research and investor outreach at Nareit, said at NAREE’s annual conference, held in Miami. The panel was moderated by Reno Gazette-Journal reporter Jason Hidalgo.

Yun said the residential market has experienced the strongest price appreciation in recorded history, adding, “Are we in a bubble?”

The states that are expected to see the highest price increases next year are Florida at 10.7 percent, South Carolina at 8.9 percent, and Maine at 8.6 percent, according to CoreLogic data. Louisiana, at 2.9 percent, and New York and Wyoming at 3.6 percent, each, could see the smallest growth in home prices.

“We are still down on inventory, but with each passing month, the decline appears to be less,” Nothaft said.

Sales growth will slow “due to rising anticipated mortgage rates and increased supply,” Yun of NAR said. While home sales increased by about 15 percent on average this year, they are only expected to rise by 2.8 percent in 2022, according to NAR data. Refinance activity is expected to drop by $1 trillion, or 50 percent, and the average credit score of those borrowers could also be lower than average.

Rents increased rapidly this year in some major U.S. cities, led by Miami, Phoenix and Dallas, Nothaft said, citing CoreLogic information.

The huge boost in sales and surge in pricing occurred after lockdowns, and were initially a shock to the industry.

“At the beginning of the crisis we saw a residential selloff. That turned out to be unfounded,” said panelist Worth. “Overall, we’ve seen people have returned to the central business districts. People want downtown living, even if they don’t want to go back to the office.”

Worth said companies will continue to reduce their physical footprints as people continue to work from home, and noted that productivity could decline in the future.

“In some ways we’ve been a little bit on a sugar high in terms of productivity away from the office,” he said.

Real estate investment trusts, which own between 10 percent and 20 percent of all commercial real estate, have experienced strong returns “despite having exposure to some of the hardest hit sectors,” Worth said. Returns have risen the most for industrial, self storage, data centers and infrastructure real estate, he added, citing year-to-date returns as of Nov. 30. Returns for self storage REITs grew by nearly 58 percent so far this year.

The panelists also discussed the expectation of more purchases by foreign buyers now that the travel ban was lifted on more than 30 countries, though they warned that it could be tampered by what happens with the omicron variant. Foreign purchases plunged to their lowest levels during the pandemic, Yun said.

“There’s a real pent-up demand on international buying activity,” he said, adding that, “it’s all virus dependent.”

As reported in The Real Deal.