2022 Forecast for Home Sales

2022 Forecast for Home Sales

My forecast for home sales in 2022: continued price appreciation, critically low supply of homes for sale, increasing demand, multiple offers, minimal days on the market, homes selling over list price.

If you have been following my commentaries you know that I consistently have posited you can’t argue demographics, low interest rates, and the multi-generational drive to live on our Suncoast (further accelerated by post-COVID cultural and political discord).

Taking a macro view of Sarasota County, according to the US Census Bureau, our current population estimate is 448,568.  Approximate annual growth rate is 2%.  In my 2021 forecast of January 11, 2021, I referenced United Van Lines 2020 “National Migration Study” which found Sarasota was the #2 “move-in” metro area in the country.

The influx of new residents has continued. In 2021 The National Association of Realtors (“NAR”) reported in its “National Migration Trends Report” that for the first-half of 2021, 62% of homebuyers were married couples, and 30% of the inbound moves came from families.   This has many implications on our local real estate market. We know our area is prime for retirees.  Sarasota and Venice are perennially on the “best places” to retire to lists. But now we can also add families to that list.  Of the ten most popular destinations for families to move to, five are in Florida, with Sarasota ranking 4th in the nation at 37%. This is a “Big Deal”.

Sarasota County is no longer just about Baby Boomers, retirees.  Millennials (25 to 40 years), a larger demographic group than Baby Boomers, who are now entering their prime home buying years, are moving here, kids in tow, in droves.

Typically, people buy a home when they start a family because they want to raise their children in a stable and safe environment. We see it all around us, from Wellen Park to Lakewood Ranch. Sarasota County is currently issuing twice the number of single-family building permits than it typically has in the last 20 years.  As a result, Sarasota County is providing greater opportunities for families to purchase a home. And regarding affordability, as further discussed below, despite higher prices, low interest rates have kept housing affordability at 2012 levels.

As families move to smaller cities like ours, businesses do too.  The NAR reports that more businesses have moved out of larger urban centers to smaller cities like Sarasota and Venice. The share of inbound moves of businesses was 47% to urban centers, it was 65% to smaller cities.  This matriculation will accelerate, and as it does it will increase business opportunities in Sarasota County, and options to work remotely.

With that as a backdrop, what follows are my 2022 predictions for home sales in Sarasota County:

1.Low inventory continues in 2022. For all these reasons and more, demand for housing will continue to be strong in 2022.  The strength of the housing market is best measured by days on the market and supply of homes for sale. Market time for the end of the year is typically higher in our area due to the Christmas/New Year season, and pre-January migration from our feeder markets up north and new sprouts from the west.  Not so this year.  As we enter in-season, supply of homes for sale are at historically low levels. As of November 30, 2021, and consistent with the 2-year downward trend, 22 days is the average days on the market, a paltry 3-week supply of homes for sale.  Based on the foregoing, I think it reasonable to project that by April, average days on the market will fall all-time lows, a 14-day range, a 2-week supply.

2.   Home prices will go higher. There are simply not enough new listings to satisfy the heightened demand. Heading into COVID listings and prices were increasing. In mid-March 2020 COVID hit, lockdowns and a shutdown of the economy followed. Homes sales and new listings were quashed. But it didn’t last long. Within 2 months buyers came back with a vengeance, but not sellers. In May 2020, after the initial COVID shutdown, home sales began to surge, but new listings remained relatively constant. I believe a major reason for the paucity of new listings, the refusal of sellers to list their homes at top dollar to meet buyer demands, was trepidation and uncertainty from the fear of COVID exposure, particularly from our elderly population.  To some degree that trepidation, uncertainty, and questions of alternative housing options continues.

In April 2020, one month into COVID, there were 2,139 pre-existing homes for sale, 537 sold                       homes, a reasonably balanced 4-month supply of homes based on closed sales. The following                       month homes for sale dropped to 1,547, while there was an increase of 939 sold homes, dropping               the supply of homes to 1.6-months of inventory based on closed sales. On May 10, 2020, I opined               on these pages that housing was poised to lead the economic recovery. And it did, as the number               of  new listings remained relatively constant while the number of sold homes grew exponentially.               Simply put, supply did not meet overwhelming demand, pushing prices to historically high levels.             In May 2020, the median sold price for an existing single-family home was $299,000.  Today it is             $415,000. A whopping 39% increase in 18 months.

According to an analytic review by Zillow, reported in May 2021, record low interest rates have created a market where, despite eye-popping home value appreciation, home “affordability” is comparable to 2012, when home values were at their lowest post-Great Recession period.  Accordingly, buyers remain undeterred to compete on price for the limited supply of homes for sale.  Prices will continue to go higher in 2022.  The goal is to slow-down the rate of appreciation.  Only rising interest rates can do that.

3. Interest rates rise and towards year-end subside. For reasons already recited herein, and in my prior commentaries, we can’t change the demand for housing due to demographics; likewise, the desire of more Americans, Canadians, and other foreigners to move to Florida is a fact.  Only rising interest rates can slow the rate of appreciation.

Accordingly, it has been my hope that the yield on the 10-year Treasury will rise by year end to at least 1.75% (to date that has not happened), exceeding 2% in 2022.  The interest rate spread between the 10-year Treasury and conforming/conventional mortgages has historically, although not always, been just under 2X.  Nevertheless, although inflation has just hit a 39-year high (time to call this “The Great Inflation”), with consumer prices increasing 6.8% in November, the 10-year yield, much to my chagrin, remains stubbornly low, within a 1.35% to 1.64% range.  Today the 10-year yield closed at 1.457%, while mortgage rates are hovering around 3.10%, with possibly a slight bump by the end of this week to 3.3%.  Not enough to increase days on the market and the supply of homes for sale, nor slow the hyper-rate rate of appreciation and multiple bidding wars.

The pace at which the Federal Reserve winds down its asset purchases and increases interest rates is critical.  It is important to note that interest rates have been on a downward trend for 40 years. If the Fed’s actions in 2022 to tame inflation and increase interest rates is coupled with a gradual easing in the supply chain, resulting in a slow-down in the rate of home price appreciation, more days on the market and increased supply of homes for sale, then do not be surprised if, consistent with the 40-year downward mortgage rate trend, by year’s end we see mortgage interest rates go lower again.

My new year’s wish is that in 2022 the 10-year yield on the Treasury will reach the 2.5% range as it did in 2013/2014 and 2018/2019; mortgage rates rise to the low/mid-4% range, cooling but not stopping the rate of appreciation; days on the market and inventory levels begin to rise; and, more sellers decide to list their homes for sale, bringing a degree of balance and calm to a hyper-hot housing market.

I leave you with this. The Preamble of our Constitution includes the infamous words “in order to form a more perfect union”. The American experience is never complete. It falls upon each of us to improve, elevate the human condition and America. It has no end. It requires risk and strength. From our founding fathers to family who preceded us, they came here, establishing and defending our values and country at great personal risk but with an adventurous spirit.  Far too many of us are paralyzed by fear from our reaction to COVID and its variants, succumbing to the veil of safety at the expense of liberty.  The fabric of our culture, way of life, foundation of our country is at risk.  But fear not. We are the land of the free and home of the brave.  And it is the supreme and personal obligation of each of us to keep it.

Until next month, may you engage the New Year with strength and confidence, and may you be showered with good health, prosperity, and joy.