You may have considered buying or selling real estate this year but so far you’ve decided to stay on the sidelines. You want to see what happens and whether the strong sellers’ market begins to downshift.
Those are reasonable questions to be asking. Here is the perspective from a real estate professional with over two decades in the business. I’ve witnessed several swings of the market pendulum over the years, and based on the signs we’re seeing today, it is a very good time to think about jumping in.
Ask yourself these two questions as you consider your options for 4th Quarter 2021 and into 2022:
- What will home prices be like in 2022?
- Where will mortgage rates be by the end of 2022?
Real estate markets periodically move from a buyer’s market to a seller’s market and back. There are usually some months in between these swings where markets are “in balance.” A balanced market is when we see around 5-6 months of available inventory, giving buyers plenty to choose from and sellers a good chance of selling at a reasonable price.
Let’s shed some light on the questions above to determine where we are in the cycle. Keep in mind that market dynamics vary for commercial real estate, depending on whether you’re looking at office, retail, warehouse, or industrial. One commercial sector might be on fire (currently warehouse and industrial) while another is languishing (currently office and retail.) Each sector experiences its own swing from buyer/tenant market to seller/landlord market. This discussion is for residential real estate.
What will home prices be like in 2022?
Three major housing industry entities project continued U.S. home price appreciation for 2022. Here are their forecasts:
- Freddie Mac: +5.3%
- Fannie Mae: +5.1%
- Mortgage Bankers Association: +8.4%
- Zillow is forecasting a +17% increase in Metro Denver home prices next year
Using the average of the three national projections (6.27%), a home that sells for $500,000 today would be valued at $531,350 by the end of next year. If you delay, the same home will cost more. As a prospective buyer, you may end up paying an additional $31,350 if you wait.
Where will mortgage rates be by the end of 2022?
Today, the 30-year fixed mortgage rate is hovering near historic lows, although in recent days rates have ticked up. Most experts believe rates will slowly rise as the economy continues to recover and the Fed begins to taper their economic stimulus. Here are the forecasts for where rates may be in the fourth quarter of 2022 by those three major entities:
Still incredibly low, but the average projection for late next year is 3.7%. Close to a percentage point higher than today’s rates. An increase in mortgage rates will increase your cost.
Homeowners, Your Own Special Considerations! You see that prices are projected to increase into 2022, so you might be tempted to wait another year to sell. If selling later meets your life cycle needs, then wait for the best time. As rates and prices increase, there is the potential that your pool of qualified buyers may be reduced. Also, factor in the increased cost of your replacement home, along with the higher rate you’ll pay when you purchase.
What if both home values and mortgage rates rise?
Your payments will go up unless you’re paying cash. Assume you purchase a $500,000 home this year with a 30-year fixed-rate loan at 2.91% after making a 10% down payment. According to the mortgage calculator from Smart Asset, your monthly mortgage payment (including principal and interest, estimated home insurance, property taxes, and other fees) would be approximately $2,478.
That same home could cost $531,350 by the end of 2022, and the mortgage rate could be 3.7%. Your monthly mortgage payment, after putting down 10%, would increase to $2,835.
Another factor to consider is that if you buy this year, you’ll be building equity all of next year in addition to paying less each month. Your $500,000 home could be worth over 6% more at the end of 2022. And quite a bit more than 6% depending on which pundits get it right.
When Versus Whether
Many calculations come into play when considering a home purchase. Lifestyle, job security, and plans for the future come to mind. Whether you purchase has a lot more to do with these intangibles than when to purchase. It’s hard to time the market, so considering lifestyle and future plans is vital in buying a home. When to purchase is a secondary decision. If you’re ready and have savings, a steady income, or cash and you know it’s time, then don’t wait to see what happens with the market.
Remember the oft-quoted Chinese Proverb: “The best time to plant a tree was 20 years ago. The second best time is now.”
Kentwood Real Estate Brokers are experts at their local markets, and Kentwood Commercial Brokers represent all commercial sectors. Prosperity Home Mortgage Colorado lenders will assist with your next home purchase financing. Reach out to our team as you consider the next steps in your life journey!