We thought we would take a break from our recent exploration of the Charlotte metropolitan area to briefly explore expected real estate market conditions in the region going into 2022. Home sellers and home buyers alike have expressed some reluctance to enter the market for logical reasons. Sellers know that home prices in the area have reach historic highs, but they are concerned that selling into this hot market may leave them with few alternatives for a replacement home, with the prospect of paying top dollar for it. Home buyers continue to experience the frustration of being outbid by multiple competing buyers for a limited inventory of homes, thereby pushing prices to seemingly irrational highs. Both concerns are reasonable.
Economists
at Fannie
Mae
project that a rise in mortgage interest rates is likely, as inflation
continues to escalate in the United States.
Tightening monetary policy will likely cause interest rates to increase
beyond the lows enjoyed throughout 2021, although the increase will probably be
slow and gradual. Rates are likely to
remain under 4% in 2022. “Even
a modest tightening of monetary policy would, of course, impact housing, but we
expect the effects to be largely muted given current market conditions,” said
Doug Duncan, Fannie Mae’s chief economist. The market conditions he was
referring to are the low inventory for homes for sale, which continues to put
upward pressure on prices.
For
sellers who are considering downsizing—usually older homeowners who may not
have updated their homes in some time—these market conditions offer real
opportunity. Today’s high offers are
frequently accompanied by large “due diligence fees”—non-refundable deposits
paid directly to sellers to compensate them for taking their home under
contract and therefore effectively off the market. Large due diligence fees give sellers
leverage to decline repair requests or requests to reduce the contract price of
the home to compensate for repairs purportedly needed after home
inspection. Buyers are unlikely to walk
away from $5,000… $10,000 due diligence fees when the seller declines repair
requests. This makes it possible for a
seller to get top dollar for their home, while not having to make repairs or
updates. As long as the seller is
downsizing and probably doesn’t mind moving toward the outside of the
metropolitan area, the windfall received from the sale of their home can be
reinvested in a smaller property in an area where prices are not quite as
inflated—such as Concord, Kannapolis or even Salisbury. This can represent a great strategy for
preparing for retirement.
No
one is expecting a collapse of housing prices in 2022. Fannie Mae acknowledges inflationary
pressures, supply chain issues effecting building materials, and a continuing
low inventory of resale homes, but none
of these things are expected to seriously impact housing prices downward. So buyer strategy should rely heavily on
researching the current market value of each home the buyer is interested in to
make sure their offer does not result in an irrational effort to “win” a
bidding war that causes the buyer to overpay significantly for a home. A clear head, perseverance and a real estate
agent who is capable of competently estimating current market value of a home
are all key elements of that strategy. With
mortgage interest rates remaining relatively low and housing prices continuing
to rise, patience and perseverance will result in the buyer being able to get
onboard the housing market train as it is projected to continue to rise through
2022.
To
summarize, while overall economic growth is expected to falter in 2022 due to
inflationary and supply chain pressures, few economists project a decline in
housing prices. The market fundamentals
remain too strong. Growth in prices may
slow as mortgage interest rates gradually rise, but very few experts are predicting
any sort of housing bubble or collapse.
There are always strategies for dealing with this sort of market,
depending on the individual seller or buyer circumstances and goals. As our company motto reflects: It is always
solid analysis that identifies great opportunities. No sound investment is likely to come from a
“one-size-fits-all” approach. Some
sellers may be best advised to remain in their homes and allow the rising tide
of home prices to continue to increase the value of their investments. And some buyers may be better advised to rent
for a year, rather than overpay for a home. But sellers and buyers who establish
well-reasoned goals and move forward based on sound research and analysis are
likely to benefit from this market.
For more information and the ability to search the entire Charlotte metropolitan area MLS system for homes, condos, townhouses and more, go to Eric Dorer Real Estate.
