2021 President, Northern Wasatch Association of Realtors
When it comes to real estate next year, consumers can expect a strong housing market with signs of normalizing. For example, home prices may rise at a slower pace, interest rates may increase a bit and sales activity may be slightly lower, although the number of transactions should exceed pre-pandemic levels.
Those were some of the predictions from National Association of Realtors Chief Economist Lawrence Yun, who recently spoke to Realtors at a national conference in San Diego.
“All markets are seeing strong conditions, and home sales are the best they have been in 15 years,” Yun said.
In fact, Yun mentioned Salt Lake City as one of the top five hottest markets in the country. With third quarter data showing home prices rising 27% annually, Salt Lake’s appreciation was higher than any other large metro in the country except Austin, Naples, Boise and Ocala.
Yun also mentioned Utah as being one of the best states in terms of jobs and employment.
“Idaho and Utah … are the only two states with more jobs right now compared to pre-pandemic,” he said. “In fact, in Utah, they have 3.2% more jobs now compared to March 2020.”
Even though many states are not yet back to their pre-pandemic number of jobs, the housing market thrived because of low interest rates and people having more flexibility to work from home.
But with affordability concerns and rising interest rates (increasing from 3% to 3.7%), 2022 sales will be down about 2% from this year’s exceptionally active market.
“The housing sector’s success will continue, but I don’t expect next year’s performance to exceed this year’s,” Yun said.
Although demographic trends still show a plentiful number of first-time buyers, the buying frenzy will start to ease as more housing inventory comes on the market in 2022. New construction, the end of mortgage forbearance programs as well as COVID-19 deaths will all affect housing inventory.
“With more housing inventory to hit the market, the intense multiple offers will start to ease,” Yun said. “Home prices will continue to rise but at a slower pace.”
Yun is forecasting a nearly 3% rise in prices for 2022, down from a nearly 15% increase this year.
Even as many people get back to getting out more often, Yun expects that the work-from-home options will continue to affect the housing market. Because of this, it’s still uncertain what people will want from their homes in the future.
“We are only in the first innings of work-from-home options,” Yun said. “People have not fully digested the work-from-home-flexibility model yet in determining home size and locational choice.”
Another factor that could affect the housing market is rising inflation. Yun said inflation is “high and could get higher” as people release their savings into the market. The rising inflation may push people to invest in housing because home prices often beat inflation because rents rise. For example, home prices rose by 12% on average in 2020 and 2021 while inflation rose 3%.
“Rising rents will continue to place upward pressures on inflation,” Yun said. “Nevertheless, real estate is a great hedge against inflation.”
Looking at the decades going back to the 1970s, in all but the 2000s, the increase in real estate prices beat the rise in consumer prices, oftentimes significantly. In the 2000s — the only exception — the increases were about even. Real estate prices were up an average of 2.3%, and consumer prices rose an average of 2.6%.
To learn more about how real estate can act as a hedge against inflation as well as what’s happening in your local market, contact a local Realtor. Find a directory of Northern Wasatch Realtors at NWAOR.com.