Assuming that the COVID situation will continue to improve, the economy and the housing market should remain solid in 2022. While the statewide home sales are expected to dip slightly next year according to our latest forecast, housing demand will remain solid and post the second highest level of sales in the past five years. Interest rates will remain low by historical standards, but the market will stay competitive in 2022. As the market normalization continues, structural challenges will reassert themselves, and home prices will remain elevated.
C.A.R. Forecast Expects Lower Sales but Higher Price in 2022 – Supply constraints and higher home prices will bring California home sales down slightly in 2022, but transactions will still post their second highest level in the past five years, according to the latest C.A.R. housing and economic forecast released last Thursday. The 2022 California Housing Market Forecast sees a decline in existing single-family home sales of 5.2 percent next year to reach 416,800 units, down from the projected 2021 sales figure of 439,800. The 2021 figure is 6.8 percent higher compared with the pace of 411,900 homes sold in 2020. The statewide median home price is forecast to rise 5.2 percent to $834,400 in 2022, following a projected 20.3 percent increase to $793,100 in 2021 from $659,400 in 2020.
Another Good Year for Home Sellers – Results from C.A.R. Annual Housing Market Survey suggest that home sellers typically pocket a net cash gain of $322,500 from the sale of their homes in 2021, a 53.6 percent jump from last year. For those home sellers who had lived in their house for five or more years, their typical net cash gain from the sale of their house was $381,000, an increase of 31.4 percent from 2020. Less than one percent of all home sellers had a net loss from their home sale in 2021, a number that is well below the long-run average of 9.9 percent, and it is the lowest level since 2005.
COVID Cases Continue to Ease: Average daily COVID cases last Thursday dipped below 100,000 in the U.S. for the first time since early August and the number continued to improve in the last few days. At the state level, the 7-day average in California is currently slightly below 6,100, less than half as many cases as that in late August. While there is no guarantee that the dip will continue as we move into the winter flu season, the latest decline in cases is an encouraging sign that the pandemic situation is moving in the right direction.
Weekly Mortgage Rates Stay Put but Treasury Yield Suggest Rising Trend: The latest improvement in the pandemic situation and the lack of labor supply have been putting some upward pressure on rates in the past couple days. While the average 30 year fixed-rate mortgage was down slightly from the prior week in the latest Freddie Mac’s report released last Thursday, the 10-year Treasury yield rose 6 basis points on Friday to top 1.6%, a level last reached on June 4. Despite the disappointing job numbers, investors still expect the central bank to stick to its tapering plans, which could spark a rise in rates before the end of the year.
September Job Growth Underwhelms: The Delta variant and the labor supply shortage continued to weigh on the economy, as the U.S. job growth fell to the slowest pace of the year. With 194,000 jobs created in September, the economy had the smallest gain since December 2020, down from 366,000 jobs added in August. Despite the slowdown in hiring, the unemployment rate dropped to 4.8% last month from 5.2% in August. The decline was directly due to the shrinking of the pool of labor as many workers gave up the job search and exited from the labor force in September.
Fewer Expect Prices to Rise Next Week: Supply, demand, and home prices are all expected to cool as we approach the end of the year. Closed sales for the first full week of October, indeed, dropped to the lowest level since late February, while new active listings declined to the lowest level since the end of January. REALTORS’® expectations on home prices also have been adjusted, as only 24.2% of our survey respondents last week believed prices were going to go up in the upcoming week, as compared to the peak of 73.7% reached at end of April. If the market continues to follow its season pattern, it will likely moderate further but remain solid from this point forward.
Source: CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
