It is possible that rising mortgage rates will slow the housing market. Or the fed might raise rates sooner than expected due to the recent pickup in inflation. But I believe one thing is certain: inventory will tell the tale.

Bill McBride, Calculated Risk

There’s so much speculation in the market right now.

What’s going to happen with mortgage rates? With The Fed? Inflation? COVID?

Lots of speculation, but when it comes to real estate, inventory will be the market indicator. The bad news is that listings are at record lows. This is for a variety of reasons: low rates, the changing definition of “home,” and perhaps the desire to own a home.

Housing inventory lower than last year, December 2020 to December 2021 with a low of Idaho at 55%, and florida near the top at -48.1% - national average at -26.8%. https://www.realtor.com/research/data/

Realtor.com looked at housing inventory year over year (December 2020 to December 2021). Where the national average is down almost 27% year over year, and Florida is one of the highest at down over 48% – a significant lack of inventory across the country. Real estate will not be able to reach its market potential, because you cannot sell what you don’t have.

Months Inventory of Homes for Sale since January 2019 with a high of 5.6 in May 2020, and a low of 1.9 in December 2020 and January 2021. Last reported number was 2.1 in November 2021. https://www.nar.realtor/topics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-continue-upward-increasing-1-9-in-november

Going all the way back to January 2019, looking at the Months Inventory of Homes for Sale, we see supply start to dip down in 2020, spike up during lockdown, and then deplete since then with record lows in December and January last year (under two months’ supply) – a number not too far off from where we are now.

Months Inventory of Homes for Sale since January 2019 with a high of 5.6 in May 2020, and a low of 1.9 in December 2020 and January 2021. Last reported number was 2.1 in November 2021. https://www.nar.realtor/topics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-continue-upward-increasing-1-9-in-november

On the other hand, buyer demand is not slowing. Showings are still strong, according to ShowingTime. This is a leading indicator of activity, because if people aren’t scheduling showings, then those don’t turn into contracts, and ultimately sold deals. Showings still continue to crush pre-pandemic numbers.

Showings Crush Pre-Pandemic Numbers according to showingtime’s index over the past 5 Novembers where 2017 is 103.9, 2018 at 98.2, 107.2 in 2019, 156.3 in 2020 and 175.7 in 2021. https://www.showingtime.com/blog/november-2021-showing-index-results

Where 2017, 2018, and 2019 are the “normal years” in real estate, we can see activity is still very strong this winter.

Showings traditionally lag during the holiday season, but the data we’re seeing tells us that buyer demand remains strong. The fact that every region showed a year-over-year increase indicates that buyers are undeterred and it speaks to their desire to keep searching for their next home. Michael Lane, President of ShowingTime

No doubt buyers are out there are in force, motivated by a number of different things: rising rates, or different needs in a home.

Showings Crush Pre-Pandemic Numbers according to showingtime’s index over the past 5 Novembers where 2017 is 103.9, 2018 at 98.2, 107.2 in 2019, 156.3 in 2020 and 175.7 in 2021. https://www.showingtime.com/blog/november-2021-showing-index-results

Those showings are turning into deals – pending deals. Sales are higher than pre-pandemic numbers as well. The market is moving, and would have even greater momentum with more inventory.

People are looking at their home equity and considering doing something different. Everyone should know how much equity they have in their home.

CoreLogic’s Q3 Homeowner Equity Report $57K Average home equity gain for U.S. homeowners with mortgages, 31.1% Year-Over-Year percentage increase in equity for U.S. homeowners with mortgages , $3.2T Year-Over-Year total increase in equity for U.S. homeowners with mortgages https://www.corelogic.com/intelligence/homeowner-equity-insights/

CoreLogic’s third quarter home equity report showed that the average homeowner with a mortgage gained $57,000 in equity – 31.1% year over year percentage for increase in equity for homes with a mortgage in the United States with a total equity increase of $3.2 trillion. Home price growth reached its highest level in more than 45 years, pushing equity gains to another record high.

Homeowner Equity Growth Still Surging q3 2021 year over year with a national average of $56,700 and florida coming in at $64K. https://www.corelogic.com/intelligence/homeowner-equity-insights/

Across the country there is an average gain of $56,700 in equity – $64,000 in Florida.

Not only have equity gains help homeowners more seamlessly transition out of forbearance and avoid a distress sale, but they have also enabled many to continue building wealth. Frank Martell, CoreLogic

The ability to build wealth through equity is one of the greatest benefits of home ownership.

U.S. households own $36.8 trillion in owner-occupied real estate, $11.5T in debt, and the remaining $25T in equity. . . . In inflated-adjusted terms, homeowners had an average of $294k in equity in Q3 2021- a historic high. OdetaKushi, Deputy Chief Economist, First American
Mortgage rate projections for q1 2022 at 3.3%, w2 at 3.45%, q3 at 3.55%, and q4 at 3.7%. http://www.freddiemac.com/research/forecast/20211015_quarterly_economic_forecast.page? https://www.fanniemae.com/media/42011/display https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary https://cdn.nar.realtor/sites/default/files/documents/forecast-Q4-2021-us-economic-outlook-10-28-2021.pdf

Fannie Mae, Freddie Mac, the National Association of Realtors® (NAR), and the Mortgage Bankers Association (MBA) are predicting between 3.5% and 4% in rates for the second half of the year. We are seeing an upward trend, with rates likely to settle where they have been over the past 10 years – between 3% and 5%.

Forbearances Finally Fall Below 1 Million with a high of 4.76 in May 2020 to 0.89 in December 2021 https://www.blackknightinc.com/blog-posts/

Forbearances have finally fallen below one million – that represents about 1.6% of active mortgages. Four out of five homes that are coming out of forbearance have a repayment plan. And let’s not forget the $57,000 average gain in equity in the last year – those in forbearance likely have opportunities.

We may see a little bit of an uptick in the foreclosure rate in 2022. Just an uptick though, from an extraordinary low level, we’re not expecting to see big increases… We expect delinquency rates overall on home mortgages to actually continue to remain quite, quite low. Maiclaire Bolton-Smith, CoreLogic
Has Home Price Acceleration Peaked?% year over year monthly price increases 2021 begin to come down since July 2021 https://www.corelogic.com/intelligence/u-s-home-price-insights/ https://www.spglobal.com/spdji/en/documents/indexnews/announcements/20211228-1448566/1448566_cshomeprice-release-1228.pdf https://www.fhfa.gov/AboutUs/Reports/Pages/US-House-Price-Index-December-2021.aspx

We all know that pricing has peaked. Looking at the Federal Housing Administration (FHA), CoreLogic, and Case Shiller price acceleration predictions (year over year) back to January 2021 starts out at 10% where we peaked around 19% in July. However, over time we will likely return to the average of about 5%. A situation in which homes will continue to appreciate, just at a slower, more moderate rate.

Home price forecasts for 2020 show an average of 5.2% https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary https://cdn.nar.realtor/sites/default/files/documents/forecast-Q4-2021-us-economic-outlook-10-28-2021.pdf https://www.fanniemae.com/research-and-insights/forecast http://www.freddiemac.com/research/forecast/index.page https://pulsenomics.com/surveys/#home-price-expectations https://twitter.com/CoreLogicInc/status/1466523328353640460

The home price appreciation forecasts for 2022 average 5.2% – anywhere from 7.5% to 2.8%.

Overall, this year looks as if it will be a strong year for the real estate market.

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