Crystal Ball Gazing

By MICHAEL EDLEN | Special to the Palisadian-Post

Questions in the minds of many people now about the 2022 housing market include: Will prices continue to increase? Will interest rates remain under 4%? Will it be easier or more difficult for buyers to succeed? When will be the best time to sell? Could the market crash? Etc, etc.

Home values have skyrocketed over the last several years, including 8 to 15% in 2021 in Pacific Palisades, depending on which measure of price appreciation is used. Many experts estimate the rate of appreciation in 2022 to be half of that, or perhaps around 5% for the Palisades. This would be in line with the average price appreciation over the last 20 years which has been close to 5%.

The bottom line for home shoppers is that we may see a gradual leveling out toward a more “normalized” market by the middle of 2022. Competition might taper off as interest rates creep up a bit and higher prices make housing less affordable. Also, the higher prices will likely lead to more people putting their homes up for sale, thus alleviating some of the pressure from constrained inventory for most of the last few years.

The bottom line for prospective home sellers is that there will be less likelihood of a bidding war to drive up sale prices. However, with inventory near all-time historic low levels except in the highest price ranges, this will still be a classic “seller’s market,” at least well into the year. Of course some neighborhoods may be stronger than others and this may make a difference to some sellers. One recent factor that has impacted the timing of some sellers is that repairs and upgrades are taking longer due to shortages of workers and supplies.

Demand for housing will continue to be driven by low loan rates and demographics. The largest number of millennials is at the age of prime home-buying years and many are benefitting from intra-family wealth transfers that continue to enable purchasing a home.

The supply of housing will continue to be influenced by the “boomer” generation being slower than previous decades to sell their homes, both because of not knowing where they would move to as well as wanting to avoid paying high capital gains taxes. Since people live longer now and home care solutions enable remaining at home longer, there is also that constraint on homes becoming available. Of course in areas, such as the Palisades, there are practical limits to building new homes to help meet the demand.

Home owners and prospective buyers should not expect a real estate market crash like we saw in 2008. The speculation and bad lending practices behind that market collapse simply do not exist today.

Buyers looking to move in 2022 will be wise to be well prepared ahead of time. They may have a little more time compared to 2021 to make decisions, but the “seller’s market” environment will require quick action in most cases. Buyers may do well to be more flexible with where they want to live or what to buy. A townhome a bit further from where they originally planned to move could be the most practical solution for some. Although they may not be able to purchase their dream home today, a home that does work right now can be a stepping stone to a more ideal home a few years later.

If you are seeking to raise a family and stay put without moving over the next five to 10 years, soon would be a great time to claim a home and lock in a low loan rate. Of course buying a house must be a practical decision based on where one is in their life financially and on their life path. Low rates argue for buying now if you can afford it and have a stable job with good earnings.

Other impacts of the strong market continuing relate to the leasing market and remodeling boom. Because of increasing challenges to buyers hoping to move up to larger or more up-to-date homes, or more favorable neighborhoods, the pressure on the leasing market is likely to continue as well.

As prices and loan rates rise, many homeowners will upgrade their existing home rather than trying to compete in trading up. A recent survey found that nearly 75% of owners have renovation projects in mind. High on the list are new bathrooms or kitchens, and also adding or improving a home office space. More than 20% are considering adding a separate dwelling unit, now that they are enabled throughout the state.

Michael Edlen has been carefully tracking local real estate neighborhood home prices for 30 years. For information about your own home, he can be reached at 310-600-7422 or michael@edlenteam.com.