2022 was another wild ride for the real estate market and industry professionals everywhere. What started as a busy year quickly became a slowed market that returned to levels seen before the pandemic.
The high of the real estate market in early 2022 quickly faded as fears of a recession from increased inflation hovered over the country. To shed some light on the major events of the year and the inner workings of the industry, we’ve put together some highlights of 2022:
📈 Interest Rate Spikes
High prices led the Federal Reserve to take aggressive measures this year against inflation, including four historic rate hikes. The biggest was in June after they raised the federal funds rate by 75 basis points. The last time we saw a hike this dramatic was in 1994.
When interest rates go up, mortgage rates are quick to follow. While this year wasn’t nearly at 1981 levels, it greatly impacted real estate and the broader economy. Here is a snapshot of how the mortgage rates fluctuated throughout the year:
With this year’s mortgage rate hikes, it got more expensive to get a mortgage, so many buyers decided to put their buying on hold, which impacted this year’s inventory. In April and May alone, inventory rose by roughly 25% as opposed to a historical average of 8% before the pandemic. By mid-2022, homebuyers began seeing noticeable relief with competition as the number of active listings for homes was up 26% compared to the previous year.
With so many factors affecting the market, it’s not likely housing inventory levels will fully recover anytime soon, but this year’s improvements give hope.
New Homes: 2022 had a great start for new home inventory, but not so much for sales. New home sales took a plunge this year with a small comeback in August but nowhere near the levels seen in 2021. Redfin reported in July that year-over-year, new home sales were down 17.4%.
↘️ Refinance Decline
While the decision to raise rates was made to address inflation, it significantly impacted financing options, including refinancing.
Since the pandemic’s beginning in 2020, refinance volume has been at record volumes. As interest rates rose, the volume rapidly decreased and returned to levels before the pandemic. By the end of September, applications to refinance a home loan were 84% lower than the same week one year prior.
🪓 Lumber Prices Fall
Timber! Prices finally started to fall down this year.
COVID-19 created a lot of issues, from supply chain disruptions and surging production costs, including the cost of lumber. But lumber prices finally took a dip this year by 30%, as rising mortgage rates cooled homebuying slightly. Although lumber prices fell, the construction of housing units remained high. The lumber price decrease was countered with a 113% increase in steel products, setting construction materials at a higher price overall.
🏆 Major Win for Remote Online Notarization (RON)
In late July, the U.S. House of Representatives passed the SECURE Notarization Act, which authorizes notaries nationwide to utilize remote online notarization (RON) and create national standards and protections for its use. The passage of this bill is an important step toward a more digital future. If passed through the full legislative process, this bill will:
- Create national minimum standards for notarization use
- Provide certainty for the interstate recognition of RON
- Permit immediate nationwide use of RON (Currently, 42 states have passed bills allowing permanent use of RON)
There are just a few more steps before this can officially be signed into law:
✔️ Passed US House
◻️ Passed US Senate
◻️ Signed by US President
◻️ Become Law
📢 FHA Announces 40-year Mortgage Modification
In April, FHA unveiled a 40-year option to lessen the burden homebuyers experienced this year with mortgage rate increases after an elevated number of delinquent borrowers.
This option is meant for those who “cannot achieve a minimum targeted 25 percent reduction in the Principal and Interest portion of their mortgage payment” using the current FHA 30-year mortgage modification option with a “partial claim.” While borrowers would be subject to slower equity accumulation, this decision helped make monthly payments more affordable.
FHA also made the headlines this year by extending the initial appraisal validity period:
- Initial appraisal validity period: 120 days ➡️ 180 days
- Appraisal update validity period: 240 days ➡️ 365 days
These changes aimed to make it easier for lenders to manage appraisal validity while potentially reducing appraisal costs for mortgagees.
📄 Rise of Concerning Practices
Real estate professionals raised concerns this year for shortcuts and questionable tactics to attract business that were brought to light:
Attorney Opinion Letters
Fannie Mae took the real estate industry by surprise when they announced earlier this year that they would join Freddie Mac in allowing attorney letters to be used in lieu of title insurance in certain circumstances. While alternative products aren’t new to this industry, this decision made headlines as many professionals urged the regular use of a traditional title policy to protect homebuyers.
Right-to-list agreements popped up quickly this year, and many vulnerable homeowners were targeted. Many title professionals expressed concerns as real estate brokerages offered to pay upfront money in exchange for a 40-year lien on the property. The homeowners that took advantage of this “loan alternative” later discovered the fallbacks of signing up for this offer. We sat down with real estate attorney, Nancy Gusman, to discuss Right-to-List Agreements and their consequences on the real estate industry.
Missed this Title Talks podcast episode? Listen to it here.
💸 Direct Deposits Accepted by Freddie Mac
In February, Freddie Mac announced that they will allow mortgage lenders to assess a prospective homebuyer’s direct deposit income rather than requiring paper documentation. While most of the mortgage market still relies on paper stubs for income verification, the direct deposit solution seeks to speed up the process for closings and deliver a better experience for mortgage seekers. Lenders who originate mortgages with “digital offerings” were able to shave 9 to 10 days off their time to close, on average.
🚀 NFT Takeover
This year has proven that memes, art, and videos aren’t the only things that can be sold as NFTs. Several real estate markets, including Florida, tested the waters this year with blockchain real estate sales. As digital currency and NFTs gain traction, Florida became one of the inaugural regions to implement blockchain in transactions. In February, the real estate technology company, Propy, processed the sale of a Tampa-area home as the first NFT transaction in the United States. Additionally, Miami Fintech company, Milo, has also allowed Bitcoin to be used as collateral to take out a mortgage.
🌀 Natural Disasters Strike Hard
Costly disasters haven’t made it easy on the real estate industry this year. Between rising flood insurance and Florida’s double whammy of a hurricane and tropical storm in October, homeowners have taken on some significant costs. Redfin predicts that 3 million single-family homes will see their flood insurance premiums rise due to FEMA’s overhauled risk prediction models.
Much of the damage from Hurricane Ian is still felt in Southwest Florida. Much of the damage from the storm is from water, with the coastal surge wiping out homes and businesses near the shore, and inland flooding hitting record levels across central Florida in particular.
💼 Industry-Wide Layoffs
The aggressive interest-rate hikes have resulted in job cuts across the housing sector. Thousands of workers who found jobs in the booming housing market during the pandemic are now facing widespread layoffs. While job reductions started with the mortgage industry, employment cutbacks and budget cuts quickly spread throughout, and hiring has come to a halt for most. Our industry is navigating one of the most challenging real estate markets in years, and businesses have had to make the necessary adjustments to keep afloat.
📅 The Year Ahead
As for the real estate industry, there will be several key objectives to remain focused on for 2023. A continued effort to do more with less will be of utmost importance, as well as cutting costs. In the meantime, we made it through 2022, and that deserves celebration. Cheers to what’s to come in 2023!