While we’ve seen the market slowing down in recent months, we’re nowhere near what normalcy looked like in pre-pandemic times. Competition still exists, and inventory has yet to catch pace with the demand in the country. It might look like there is an end to the madness in sight, but that’s not entirely the case.
We recently sat down with an economist from the National Association of Realtors ®, who gave us some insight on the future of the housing market, mortgage rates, and affordability as a whole. While the market has definitely shifted, Nadia Evanglou offered good news. She and other economists predict that business won’t slow down as much as many title companies, real estate brokerages, and mortgage lenders think.
A shift in operations is still something to consider as a title company, but there will be plenty of work to do through the end of 2022 and beyond. Here are some of the key predictions offered based on the data.
Prefer to watch it? Click here to view the behind-the-scenes Four Stories interview.
Remember Pre-Pandemic Levels
As we witness what some are calling the “Great Deceleration,” we’re still nowhere near normal levels in the housing market. It’s easy to think that the decrease in competition, slowed mortgage applications, and reduced homebuying activity are getting us back to normal, but the pandemic has skewed our perspective. We need to continue to see these reductions continue for much longer than half the year.
Predictions for both 2021 and 2022 were very difficult. Nadia admitted that there were many forecast adjustments made during this period of uncertainty because rates increased even faster than predictions suggested. On the other hand, rates still sit lower than historical averages of 8-10%, so buyers shouldn’t be completely intimidated by the market’s state.
Affordability Remains an Issue
While the craze of 2021 showcased bidding wars, multiple buyers, and double-digit percentage price increases, 2022 hasn’t yet offered normalcy. Both home prices and mortgage rates are expected to rise slowly in the coming months. Paired with a 40-year high for inflation nationally and the war in Ukraine, affordability will remain a challenge for homebuyers.
According to Nadia, the Fed may raise interest rates past 6% by the end of July, and home prices will rise by 8% before the end of the year. When you look at the 20-30% increase in home prices in 2021, it may appear that there are better opportunities to buy, but new factors this year are influencing it. She did say that interest rates are likely to cap out at 6.5%, though.
Millennials and Baby Boomers Continue to Buy
While we often look at mortgage rates, inventory, and the economy’s health as primary factors in homebuying, demographic shifts are key for predicting the market as well. Nadia pointed out that many Millennials and Baby Boomers are entering the homebuying age range just as they did last year.
They make up the largest percentage of homebuyers in our market right now. Millennials are entering their 30s, and Baby Boomers are falling into the retirement age, which presents competition. Gen Zers are on the near horizon, too, and will likely be buying sooner than Millennials did, respectively.
Related reading —> Understanding Future Gen Z Homebuyers
Inventory Is Improving, but Still Behind
It’s typical to see inventory increase in the spring and summer months, but the levels are increasing faster than years before. In April and May alone, inventory rose by roughly 25% as opposed to a historical average of 8% prior to the pandemic. This is good news, but overall a balanced market usually offers 2 million homes, and right now, inventory is sitting at only 1 million.
Business Will Remain Steady
While the “Great Deceleration” may seem daunting to many title companies, the slowdown of the market is nowhere near pre-pandemic levels, and business will remain steady. Title companies should be considering reallocation of their resources and capitalize on a slight slowdown to focus on business strategy from last year’s struggles, but the future is still quite bright.
Outsourcing title production work is a viable option for many title companies because it allows businesses to fluctuate with the market conditions while taking on less risk from hiring additional resources. The shift in the market is a signal to title companies to equally shift towards a variable-cost model as opposed to a fixed-cost model.
We recently hosted a series of webinars covering the opportunities for title companies to strategize operations in this fluctuating market. The core topics covered were considering your customer base, reallocating talent, and improving business efficiency. Watch the recordings on our webinars page to learn more about these core business strategy improvements.
