Our East Bay Realtors recently read an article from 2021 about home prices and increasing household wealth. As we read this article, it got us talking about trends in real estate and how home prices will affect the real estate market in 2022:
With a lot of help from the Fed.
Home prices continue to post record gains, pushing household wealth up to the highest level in U.S. history. Considering that the pandemic showed signs of unleashing a cataclysmic financial event, the numbers are staggering.
A new index from the Federal Housing Finance Authority showed home prices jump another 1.4% in July, capping off a year of unprecedented growth that drove the value of the average home up by nearly 20%.
Per Bloomberg, that’s the largest-ever increase in value of real estate holdings, which added $1.2 trillion to U.S. household wealth in just the first half of 2021. The Federal Reserve reports that total U.S. household wealth now stands at a record-shattering $141.7 trillion.
What does it all mean? In the face of calamity — and with newly printed bucks supplied by the Fed — America did what it does best: we shopped. Specifically, we bought homes, an asset class that outperformed as usual, but now like never before.
East Bay Realtors Current Analysis
The Federal Housing Finance Agency (FHFA) reports that every region in the country saw at least a 14.9% increase in home appreciation (HPA) in 2021. However, the MReport predicts 2022 will be a ‘transitionary year” for both the economy and the housing market: home price appreciation is expected to drop to 7.6%. In 2022.
This still bodes well for homeowners.
Another key metric to watch is the home price index. The HPI is a weighted repeat sales index that measures average price changes in refinancing or repeat sales of single-family properties. In addition to being an indicator for house price trends, it is also used as an analytical tool for estimating changes in prepayments, housing affordability, mortgage defaults and potential shifts in the stock market.
An increase in home prices signals several things to analysts:
- More jobs created
- Increased confidence
- Higher consumer spending
When home prices fall the opposite tends to happen: consumer confidence falls, fewer jobs in the real estate market (layoffs) and increased risk of an economic recession.
Current analysis of the HPI expects it to be 279.00 points by the end of the 1st quarter 2022, and projected to trend around 284 points in 2023. This is a positive signal for homeowner wealth and the market in general.
Inventory levels are also key factors for homeowner wealth. Low inventory of homes continues to persist in 2022, and strong demand continues to push prices higher. This trend will cause household wealth to increase as well.
Mortgage rates have risen, with the average rate of a 30-year fixed mortgage at 4.14% as of March 12, 2022. This could potentially add $200 dollars or more to the monthly cost of homes for sale since December 2020. Home affordability may be reduced for some buyers as a result.
GDP is also expected to decrease slightly this year, going from 5.5% in 2021 to 3.1% in 2022.
East Bay Realtors Predictions
Thanks to inflation, supply chain issues, and the war between Russia and Ukraine, this forecast is apt to change at a moment’s notice. In addition, interest rate increases by the FED could have a profound impact on the housing market and household wealth. (The FED is expected to raise interest rates by a quarter percentage point in mid-March).
GDP is expected to decrease slightly in 2022, down from 5.5% in 2021 to 3.1% in 2022. Any of the above-mentioned situations could have a significant effect on GDP and household wealth.
The next few months could be quite interesting. It’s critical we pay close attention to the various situations and how they could affect the housing industry.
About Range Homes
Are you looking to buy or sell a home? Range Homes has helped customers buy and sell homes in Lafayette, California for years. We have some great market data to help you pick the perfect area and are ready to help you find your dream home during these unprecedented times. Contact us HERE for your real estate needs.
