Residential Real Estate

Is the housing market cooling off? Yes, but it's far from an ice age

By Scott Nunn, posted 4 months ago

Even with a few headwinds on the horizon, real estate leaders in Greater Fayetteville and at the national level expect the 2022 housing market to pick up where feverish 2021 left off. Analysts are forecasting some stabilization in the market, but still predict a robust 2022.

In a recent survey by leading economists and housing experts by the National Association of Realtors, the consensus pointed to existing-home sales of 5.9 million in 2022. That’s only a slight drop from the estimated 6 million existing homes sold in 2021, the market’s strongest performance in 15 years.

“Overall, survey participants believe we’ll see the housing market and broader economy normalize next year,” said NAR  chief economist Lawrence Yun. “The spring homebuying season should be very robust, maybe not matching up with last year’s intense multiple offers, but one of the best in the past 20 years.”

Yun also is forecasting less supply-chain disruption, which he said should result in a modest increase in housing starts. But the supply chain problem is not the only thing causing a drag on construction. Christy Budnick, CEO of Berkshire Hathaway Home Services, said the ongoing labor shortage is another variable the housing industry will be monitoring closely.

“The two biggest elements that we believe are headwinds are continued issues with supply chains as well as labor shortages,” Budnick told RisMedia, a leading residential real estate news source.

Both issues are hindering the new-home market as well as the existing-home sector, she said.

A major shortage of houses for sale has been the major driver of rising prices, exacerbated by people fleeing dense urban areas to places such as North Carolina. But economists say the trend is slowing as the pandemic eases and Americans adapt to “a new normal.”

Although COVID-19 disrupted the market, the shortage of homes for sale has been weighing on the market since the 2007 real estate crash.

“There is a shortage of 4.5–6.5 million houses nationwide,” according to Amanda Smith, a broker with Townsend Real Estate in Fayetteville and 2022 president of the Longleaf Pine Realtor Association. “New home construction has lagged behind demand for the last 15 years.”

Smith said it’s a big hole to dig out from and she expects significant housing shortages to continue for several years. And when houses do go on the market, they aren’t there long, with buyers racing to beat each other to the punch and bidding up prices.

“They do sell quickly and often have multiple offers,” Smith said. “In 2021, nationwide a third of homes sold for more than they were listed.”

And unlike the early 2000s, when questionable mortgages were driving many sales, buyers today not only are making larger down payments, nearly a quarter of sales in 2021 were all-cash purchases, according to the NAR.

While the housing shortage is across the board, it’s worse in some price ranges. Smith looked at sales by price range for 2020 and 2021.

“Both years indicate the $150,000-$200,000 price range had the most sales,” she said. “I see a dropoff at the $300,000 price point.”

Looking at the 2022 market, Smith said more homes are needed at all prices, but definitely under $300,000. And although there are certain layouts and features buyers want, they likely will be harder to find for now.

“Buyers still tend to prefer a three-bedroom home with two bathrooms and a bonus room, but in this market they're having to be flexible or exercise a lot of patience,” she said. “It's taking time to find the right one and get an offer accepted. It can be disheartening for buyers and as agents we have to prepare our clients for what to expect.”

Although comprehensive numbers are hard to find, economists also believe the work-from-home trend will continue, meaning relatively affordable markets such as Fayetteville will continue to attract people from larger, more-expensive areas.

“When you have the flexibility to now work remotely, then home could be anywhere,” Smith said. “Those accustomed to living in very expensive markets who now work remotely 100 percent of the time may choose to sell their current homes, find the same or a bigger home for less in a different market, and make a move.”

Additionally, both Smith and national industry observers expect a few well-established pre-pandemic trends to continue.

“We continue to see people moving to warmer climates and the market remains strong for second homes and vacation homes,” Smith said. “Another trend has been to move closer to family.”

Improved technology and employers’ embrace of flex work has only expanded those trends.

Even before COVID-19 emerged, an increasing percentage of companies were offering work-from-home options, according to the NAR. In 2018, the Census Bureau reported 8 million Americans (5.3 percent of all workers) worked at home – and that was two years before the pandemic began,

That trend not only is changing the housing market’s geographical dynamics, it’s also influencing home design. Even in 2018 – the last time it closely examined the subject – the NAR found that more developers were designing homes to accommodate remote work.

While analysts are predicting a slow return to normal market conditions, they say the supply and demand imbalance will continue to lag.

“I think we’re going to continue to see a very tight supply of homes,” Budnick, the BHHS CEO, told RisMedia.

And with the market still on a bit of a rollercoaster ride, she said real estate professionals must build close relationships with clients.

The current market “requires a great deal of trust and education,” Budnick said.

Meanwhile, analysts say, the current high prices and strong demand are likely to bring more sellers into the market. In a recent NAR survey, 26 percent of respondents said they would be willing to sell their homes within one year. Asked the same question last spring, only 10 percent of homeowners were willing to sell within a year.

That, in turn, could ease both the supply shortage and price spikes, potentially bringing buyers who have fled to the sidelines back into the market.

So while the general consensus points to a less-fever-pitched year for the residential market, industry experts say it will only be a matter of degree.

“Instead of having 12 or 20 offers on a listing, we’re looking at two or three,” Rei Mesa, president and CEO of BHHS in Florida.

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