Are we headed for a crash or will the real estate boom continue in 2022? The last two years in real estate have been unprecedented and unpredictable and there’s a lot of chatter about how 2022 is going to play out. 2022 will likely be just as unpredictable, but there are a few things I foresee playing out. 2022 will bring more balance to the housing market, but it’s still going to be a seller’s market- just more selection, less frenzy and slower price growth. We are going to see a rush for buyers to buy a home at the start of the year before interest rates rise even more. While nobody has a crystal ball below are my 2022 housing market predictions in Los Angeles.
1. Interest Rates will Increase in 2022
We have reached the end of declining mortgage interest rates and have seen interest rates start to climb. In the past month we’ve seen the 30-year fixed national average interest rate go from 2.7 to 3.4. This interest rate hike decreases purchasing power by 10% so if you are getting a $1M mortgage your payment would have been $4K a month ago, but now it’s $4400. That’s not a deal breaker for most buyers and buyer demand is still there, but as we creep closer to 4%, buyer demand will fall off. The consensus among chief economists is that we will see interest rates between 3.6 and 4% by the end of the year so buyers have a window of opportunity over the next 3-4 months especially now around the holidays where so many people have shelved their home buying plans until after the New Year. So if you are serious we need to get you out there looking at properties so you can get a low interest rate and beat the Spring rush.
2. Home Appreciation will Slow Down
As interest rates rise, we are going to see home appreciation slow down. Home appreciation throughout Los Angeles in 2021 was insane. We saw double digit appreciation in most areas of the South Bay and Westside. In 2022, we are going to see annual price growth slow to single digits. The low-price growth will likely discourage speculators form entering the market and allow more first-time buyers to have a chance at winning a home.
3. Housing Inventory will Increase
We are also going to see more listings coming to the market. New listings will surpass the 2018 high of 7.6M homes. As the market balances out, sellers will find it less intimidating to list their home while looking for a new one to purchase. The end of double-digit price growth will also encourage homeowners on the fence to finally pull the trigger and cash-out.
4. Rent Prices will Increase
We are also going to see rents increase by around 7%. Rental demand will be strong for a few reasons. The end of mortgage forbearance will trigger some homeowners to sell and rent instead. Also, the strong labor market will prompt people to move to a new city. They will want to rent until they get to know the city better. With vacancy rates already at record lows and the rental market being just as insane as the buy/sell market, increased demand will push rents to record heights.
5. Condo and Townhouse Demand will Increase
Condo and townhouse demand will take off in 2022. More and more buyers are open to buying a condo or townhome for a fraction of the price of a single-family home. That’s a reversal from when the pandemic lockdowns motivated buyers to seek out larger homes with big backyards. In September 2021, only 28% of Redfin users filtered for only single-family homes (excluding condos and townhomes from their search). That number is down from a peak of 37% in July 2020. California recently passed Senate Bills 9 and 10 to increase housing density on lots previously reserved for just single-family homes so we expect to see an influx in new construction townhouse and condos in Los Angeles.
Those are my predictions for 2022! If you have been thinking of buying or selling in the Los Angeles area, we would love to sit down with you and have a strategic planning session to help you navigate not only the challenges, but also identify the opportunities that we are seeing in today’s market.