By Dale King, Realty News Report – Virtually all recent studies of real estate markets across the nation come to the same conclusion. Home prices are increasing – in some areas, soaring. All this is fueled by ongoing dirt-cheap mortgage rates, heavy demand and a shrinking list of available homes.
But this picture is certain to change when the calendar flips over to 2022. “Prices will slow down,” said Ken H. Johnson, Ph.D., an economist for FAU Executive Education within the College of Business at Florida Atlantic University in Boca Raton, Fla. “You will no longer see double-digit price appreciation.”
“Overall, we will have a real estate ‘event,’” the FAU professor told Realty News Report. “If you are in an area where there’s been a huge influx of population growth, there will be a hiccup in prices. But if you’re in a region where growth has been low to moderate, the impact on the price structure will not be good.”
For the record, he noted that “to my knowledge, there are no general areas where home prices have declined in the past year or so. Except for perhaps some few small towns here and there.”
Johnson has racked up impressive stats during his decades of work in the real estate field. He has been studying the home buying/selling market since he started out as a sales associate in 1983. Now assistant dean of graduate programs at FAU and a recognized property market researcher, he was asked to offer his assessment of the 2021 market – and prognosticate about the coming year.
“If I could predict what the market will do in 2022, I’d own an island – called Australia,” said the veteran analyst who’s led the FAU Real Estate Initiative since 2014.
The aforementioned “real estate event” will cause prices to “settle,” he said. Fortunately, it won’t arrive with the sledgehammer impact of the crippling 2008-era recession that flattened home prices dramatically. In fact, it’s likely to influence the USA “more like an economic tropical storm rather than a Category 5 hurricane.”
But it will be something that cuts into hyperdriven price increases, bringing expected home values closer to the actual worth of residences.
On the one hand, he said, the “event” will likely cool prices of homes everywhere, even in high-growth areas such as Texas, Florida, Tennessee and other states that are enduring various levels of “overvalued” properties. But communities that have been slogging through real estate doldrums may find a continuation – or worsening – of their stalled home buying and selling environment combined with price stagnation.
“In many metros, there will not be a housing crash, but rather, the housing market will go flat.”
Take Topeka, Kansas, for example. “It’s a metro that has experienced, and is expecting, limited population growth. Like many other places, they have a low inventory of homes. In these areas, there is a flight in population, which will have a negative impact on housing prices as mortgage rates begin to rise.”
He even pointed to his hometown of Montgomery, Ala., which is expecting “slightly negative” population growth of minus-.5 percent in the next decade. Decreasing population and rising mortgage rates should combine to create a more significant negative impact on areas of the country with these characteristics.
Johnson is looking ahead to a “bifurcation in outcomes for markets around the country. Those with growth in population will fare noticeably better than those with minimal to negative growth in population.”
The COVID pandemic has caused some surprises in the real estate arena, he noted. And not all of them were predicted – or predictable.
“I thought when the coronavirus hit in 2020, the market would crash. Well, it slowed down for a brief time, then it picked up.”
One thing that caused home sales to recover robustly “shocked me. I can say that in all my career, I ever sold a single property without physically showing the property.” But during the pandemic, people were doing lots of long-distance, virtual buying. He admitted that many potential buyers were looking to purchase bigger homes so they could create home, office and education space in one location as COVID shut down offices and schools.
Commuting distance no longer became a determining factor in this COVID-revised world. Actually, work-at-home, school-at-home situations have gained varying degrees of popularity over the course of the worldwide virus infection. The final where-to-work decision has yet to be decided in areas where employees have been able accomplish as much or more from the comfort of their homes.
The FAU analyst said “hot spots” for home price hikes in 2021 were in predictable regions – the locations where people on the move were looking to settle. “The Southeast and Southwest were in demand. So were Oregon and Utah – in particular, locations that people once thought of as second-tier cities. Also, a lot of people moved to the Northwest.”
Texas metros did well in gain-of-population figures, as did South Florida. Johnson said the West Palm Beach region of Florida is expected to grow by 14 percent over the coming decade.
Regions that shed homeowners included the Midwest and many areas in New England, New York and New Jersey.
A lack of available inventory has cursed the housing market of late. But Johnson said he, and others, have been warning for 15 years that home construction has not kept up with the surging interest in buying dwellings.
“This is impacting the nation as a whole,” he said. “Some home builders got clobbered in the last crash,” so they’re hesitant to get back into the development business full tilt.
The shortage “will not be eliminated by next year. It’s going to take two or three years, regardless of the pace of construction. There just not enough available units.”
The FAU housing analyst said contractors are unlikely to launch a surge to catch up, even with a looming uptick in mortgage rates. There may be a slight increase, but the inventory will remain low relative to demand.
Inflation is another factor in the real estate formula for 2022. Some buyers are already looking at staggering price hikes for gasoline and groceries while contractors are paying premium costs for building materials.
Coming so quickly after many Americans received federal COVID assistance dollars to pull them out of a quagmire of joblessness, inflation could set off a double whammy. “People now holding cash are spending and driving the prices of goods and services up. This inflationary process will serve to push mortgage rates higher and lower demand for housing.”
Dr. Johnson and Dr. Eli Beracha, a colleague and researcher at the Hollo School of Real Estate at Florida International University, are currently developing a statistical model indicating if properties in a city are selling at, above or below where they should be given past housing prices.
The analysts examine the 100 largest metro areas monthly to help buyers, sellers, brokers and policymakers make more informed real estate decisions. They use publicly available data from the online real estate portal, Zillow or other providers, to model expected prices and compare these to actual prices in a city to determine if the average property for the area is selling at a premium or discount relative to historic prices in each area.
Oct. 25, 2021 Realty News Report Copyright 2021
For more about Texas real estate, check out the book Houston 2020: America’s Boom Town – An Extreme Close Up by Ralph Bivins. Available on Amazon http://tiny.cc/4a2g6y
Houston 2020 Ebook version https://tinyurl.com/4xm7z8b5
File: Home Price Surge Will Slow Down
Feature photo credit: Ralph Bivins, Realty News Report Copyright 2021