Housing Market 2022 Forecast -Unboxing all things Real Estate 2022 -Oregon, Yamhill County & the US
Will home prices drop? Will housing prices continue to rise? When are there going to be more homes for sale? How much does the rate really affect my monthly payment? Aren’t there supposed to be a lot of foreclosures for sale at some point coming on the market? You know sometimes I think it would just be a lot easier to buy land and build a house on it.
These are all questions that I talk about with friends and clients alike. Today I’m going to focus on three things. A quick overview of what got us here, what home prices and inventory look like here in Yamhill county and a little insight as to what the experts are anticipating that we will see as 2022 unfolds in regards to rates, rents and more, both here and across the nation.
Factor #1 -What Got us Here?
We all know that the housing market has been crazy this last year and a half, but why? To put it simply, supply and demand. There are a number of factors that have contributed to the amount of buyers on the market versus the amount of homes available to be purchased. I myself focus on four main contributing factors to the lack of the supply and the higher demand. The first factor, the reduction of newly constructed homes after the crash on 2007. Prior to that time, new construction was providing an average of about 1.5 million homes a year across the United States. When the crash happened in ’07, building starts began to drop, which was expected because we had a ton of foreclosures coming on the market and there were just way more homes than we had buyers for. In the years of 2009 to 2012, new home builds across the nation hovered at about a half a million homes a year. New home builds slowly began gaining speed in 2012 and construction of more homes could be seen each year, but even so, they still really only recovered to about 1.2 million new homes a year. In order to sustain the growth of population over time, 1.8 million homes a year needed to be built, from the early 2000’s forward. Being so far below this yearly build count, for so many years, this decade plus long gap of construction created a deficit of about 5.5 million homes having been built in the United States. You combine this with the loss of about 1.3 million homes through demolition, natural disasters and functional obsolesce, 2021 greeted us with a shortage of about 6.8 million homes in the United States. According to a report commissioned by the NAR in July of 2021, it was drafted by the Rosen Consulting Firm, they stated that it would take a 60% increase in home builds, so 2 million homes a year, for the next 10 years to be built, in order to catch up for the lack of inventory and to account for continued historical growth in population
So how does this affect Oregon? According to the NAHB, the National Association of Homebuilders, Oregon over the next two decades will need about 583,500 new homes to be built, just over half a million homes, in Oregon, and of those, half need to be outside of the Portland metro area in order to meet the anticipated housing needs, between now and 2040.
Having now a reference to the lack of supply, the question is posed why the sudden demand?
Factor #2 – Enter the Millennials
Factor number two of the scale tipping… The average age of first-time home buyers has slowly risen from about 29 years old in 1981 to an average age of 33 years in 2021. Why is this significant? We’ve entered in the millennials, the largest living adult generation by population that the United States has ever seen. They account for the age groups between 22 and 41. Many millennials held off buying homes in their 20’s because of the recession and instead, a lot of them have spent the last 10 years going to college, traveling and saving money. They’ve now entered the real estate market in great numbers because they’re ready to buy their first homes. This gave us our first influx of buyers on the market in the 2020-2021 window.
Factor #3 – Interest Rates
Factor number three are the interest rates. Interest rates dropped to historic lows in 2020 and they continued to drop into 2021. At some points, the rates were even under three percent! The drop in interest rates reduced the monthly payment of mortgages making home ownership attainable for a greater number of buyers than in the previous years. An example, if you have a $360,000 loan at 4% interest rate back in 2018 or 2019, the principal and interest payment would have been about $1,719. As interest rates dropped in 2020 and 2021, more buyers were able to take advantage of these new rates and they qualified for loans they previously couldn’t. That same loan of $360,000, locked in at a lower rate of 3%, now a buyer only had a monthly payment of $1518, $200 less a month. This became our second influx of buyers on the market.
Factor #4 – Supply and Demand
The fourth factor in the supply and demand scale has been due to Covid. As we all know, many of us spent 2020 inside of our homes and parts of 2021 as well. In this changed lifestyle, many people realized two things. One, how much more space they really needed, or they wanted, because they wanted to accommodate a home office space or maybe a workout room, more space for the kids, a yard for the kids etc… They also realized that they could work from home so they didn’t necessarily need to live in a location that was close to their offices (more urban areas) anymore. The desires of both a larger home to meet greater needs; and for others wanting to just move to a more desirable area versus where they needed to live for commuting purposes gave us a third influx of buyers that were coming onto the market.
Housing Market 2022 Forecast
Now that we have a picture of how we got here, what does this real estate market actually look like and what can we expect to see over this next year of 2022? 2021 saw the median home price in Yamhill county rise from $342,840 to $444,380, a19.64% increase. Now yes, our median home price is greater than the nation’s median home price of about $303,000, but the change in percentage was the same at 19.64%. Inventory has hovered month over month between .6 months to 1 month, meaning if at any given moment we were to sell absolutely everything that was on the market, without any new homes coming on the market, how long would it take for us to run out of homes? Most of the year it would have taken about a half of a month to one month if no new homes came on the market. Now this is actually not just here in Yamhill county, but this is the same for all of the Portland metro area for this last year. Inventory though when looking at the numbers here in Yamhill county, haven’t dropped dramatically. In 2021 we had 2142 homes come on the market, which in 29 years, was the eighth highest inventory we’ve had here in the county, not the highest, but sure not a super low count of homes for sale historically. We’ve also had a record year of closed purchases of 1760 homes, which is the most home sold here in Yamhill county since tracking even began in 1992. As a buyer, what does this mean to you? It shows there’s a constant revolving door of inventory on the market. So if you’re not in a hurry and you’re able to position yourself with a pre-approval and money down, being able to find and purchase a home here in Yamhill county is a very likely scenario for this next year!
New construction has been a contributing factor to this inventory over the year. We have had at least 10 subdivisions break ground here in the county. Some of the subdivisions, have sold out over the year, a few are nearing the end of their availability of homes and there are a few others that are just starting to break ground. We also have a few subdivisions that are mid-build… they’ve been building and they are going to continue to be built in phases over a window of a few years. Most of the new homes right now, being single family residences, are in the price point of $408,000 to about $850,000, ranging in sizes from 1500 to 2700 square feet. There is one build that has identified a section of their subdivision that will be building 51 multifamily style apartments over the next couple of years to additionally house a lower price point as well. Looking forward, there are about 800 plus homes already approved in subdivisions here in Yamhill county to be built around the year, which is great for this year coming up!
Buying Bare Land and Oregon’s UGB
Another question that I have clients ask when they move here is if they can just buy some land and have a house built allowing them the style of home they want. The answer is yes, of course, but it’s not as easy as it sounds. Oregon has a very strict land use system, known as the Urban Growth Boundary, or the UGB. It was enacted in 1973 and the goal was to emphasize contracting development within urban growth boundaries. In other words, within the cities and towns, while restricting the development of farm and forest lands. The idea was to protect the farms and the forests from urban sprawl between the cities. Cities have since then been tasked with periodic review requirements to make sure that they have developmental land, but at a minimum that’s needed. Any time growth needs to go past the UGB, the cities and counties have to submit a proposal to the LCDC, Oregon’s Land Conservation and Development Commission, showing justification according to 19 statewide planning goals which all aim to preserve the highest quality of agricultural lands, conservation of the forests and the open spaces, to develop high quality livable cities by increasing the density, and to improve the public transportation within the cities and the county. It also encourages housing close to employment. These are the main goals of the UGB. Now finding buildable lots for sale sounds a lot easier than it’s reality. Once you get outside of the UGB, zoning then takes precedence over if you can or cannot build on a parcel. At the point you are able to find a parcel, the next step is to find out if it can be built on. Can a septic be approved? If you drill, can you get water? What are the costs for all of these things in addition to the build, electricity and maybe even gas lines brought in. Buyers going this route, can find land, but it is a longer process and a lot of patience is needed.
What are the forecasters, the economists and the associations in the industry foreseeing for this 2022 year? Thankfully they are not expecting the prices to increase at the current course of the 19.64% which we saw this year, because we know it’s just not sustainable! Of course every area in the nation is a little bit different and there are more desired cities and towns versus others, but the general consensus is that an average blanket price appreciation of 5.1% will be recognized this year for homeownership across the nation.
Another topic that I’ve had questions about is the idea of a wave of foreclosures hitting the market. Truth be told, the experts are really not expecting to see much of that happen and are saying that it really will be a non-factor. In May of 2020, about 4.76 million mortgages went into forbearance, but by December 2021, only 890,000 mortgages remained in forbearance. This represents only about 1.6% of active mortgages in the United States, not a large percentage. Of those 4.8 million people, almost 39% that went into forbearance, at some point during the last two years were able to repay in full any payment that had been missed. 44% were able to work out some type of repayment plan. So they either modified their loan, they maybe refinanced it, or worked with their lender and added the deferred payments on to the end of the mortgage term, essentially extending the mortgage by a few months past the original 30-year repayment window. The last 17 percent, as of November 2021, hadn’t quite yet identified their plan. One thing to consider that was different than the housing crash of ’07 to ’09 though, is that values of homes as we’ve spoken about, have actually increased greatly, so there’s a high probability of equity in these homes. If people can’t make payments or come to an agreement with their lender, then you may see them sell their homes and save the equity, or possibly refinance to a lower rate resulting in a lesser payment. There are a lot of avenues for them to work through still before their lender would foreclose. Frank Martell, the President and CEO of Corelogic sums this up really well when he said, “Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid distressed sale, but they’ve also enabled many to continue building their wealth.”
Second to last of the forecasts are rents. Rentals in Yamhill county account for approximately 30% of our residential properties. As January 2022, per rentdata.com the median rental rate for a two-bedroom single-family residence is $1405 a month. This being said, when I ran my own search (on 18 January 2022), most of what is currently available are three to five bedroom homes averaging about $2000 a month. For those unknowing, Oregon was the first state in 2019 to pass a statewide rent control bill. The only homes that are exempted from this law are properties that were either one, issued a certificate of occupancy less than 15 years ago, or properties that provide reduced rents as part of a federal, state, or local program. To note, the exemption is not inclusive of section 8 rentals. In 2021, the maximum allowable rent increase in the state of Oregon was 9.2%. State economists have announced in September 2021 that the rent increase limitation for the year 2022 will be capped at 9.9%. This is just a little bit higher than Oregon’s 22-year average of 9.3% a year. Regarding nationwide, per Corelogic, in 2021, rents had increased 10.9% over the first three quarters of the year. The economists are expecting that increases will continue over the year and they are thinking 7.1% increase in rents across the nation.
2022 Rate Forecast
Lastly, rates. Rates hovered during 2021 around 3%. Some moments dipped below and other times, they climbed just a little bit above, but for the most part, the 3% window is where we hovered for the year. Projections for the 2022 year are that we will see about three rate increases and they will steadily climb to about 3.7%. Some reports actually even estimate 4% by the end of the year. We have actually seen a small climb in rates already in the first two weeks of this year. The real question though when we’re talking about rates, is how does it affect the monthly mortgage payment? Truth be told, rates are really just a component. to provide a tangible example, a $440,000 loan at 3.25%, the principal and interest payment will be about $1915 versus later in the year. If rates rise a bit, and one was to lock in at 3.75%, the principal interest payment would be just over a hundred dollars MORE a month, at $2038 a month. This reality is expected to slowly reduce some buyers abilities to purchase. If some Buyer’s are already on the edge of qualifying with monthly payments where they currently stand right now, it would thus essentially reduce the number of buyers on the market. Chief economist of Realtor.com, Danielle Hale really kind of dialed it in, in regards to what buyers need to know, when she said, “Buyers should pay close attention to their budget and know how small changes in mortgage rates can affect their monthly costs.” To go one step further and really see the true full picture of 2022, if rates increase over the year and homes slowly continue to rise in price as well, buying now versus the cost of waiting to buy later in the year would look more like this further example. Based on a home price of $444,000, with an FHA loan putting three and a half percent down, the loan amount would be $428,460. If locked in at 3.25%, the principal and interest payment would be $1864.68. Using the forecasted home price increase of 5.1%, the same $444,000 house would later this year be priced at $466,644. Same FHA loan, you putting three and a half percent down, the loan loan amount is now $450,311, we estimate a 3.75% interest rate and the resulting principal and interest would then be $2085.46. This is a difference in the monthly payments between now rates and now prices (January 2022) versus what the economists are anticipating for fourth quarter of 2022, of $220.78 cents more a month. Multiplied over 12 months a year, 30 years in the end, one would pay just over $79,000 more for the same house, having waited to purchase later in the year.
The takeaway, if you have thought about buying a home this year, the earlier that you get pre-approved and start your search, the better positioning you are setting yourself up for. If you have been thinking about selling a house, right now, Quarter I, 2022, the competition is extremely minimal and you have the ability to sell at top dollar! Yes, values as mentioned above, are expected to increase over the year, but the added inventory of homes on the market and the reduction of qualified buyers, may change the timeline and the price point of how fast and how much you can sell your house for later in the year.
I hope this has given you a good feel of the market. Where we’ve come from and where we’re expected to be over this next year, 2022. If you have any questions at all, feel free to reach out to me or comment below.