Housing Market 2022

What will happen to the housing market in 2022? Fair Question, read to get our thoughts on it.

With companies like Zillow predicting another 20% spike in prices in the year 2022, consumers are uncertain and afraid. On top of predictions like this, we are starting to interest rates go up, and cross over to the 4% for the first time in a long time. According to the government, we are going to see additional spikes throughout the year. This is somehow supposed to stop inflation? Yeah we don’t get it either.

There are a few things to remember here. Although companies like Zillow do have good indicators for the market, they don’t always get it right. Remember that time Zillow bought up a bunch of houses in attempt to flip them and sell them? Yeah, they ended up overpaying and eventually sold a majority of these homes at a loss. In fact, some of these Zillow owned homes are still on the market. There is one important thing to remember here. Anyone in a specific market, field, or operation that’s regularly involved in that operation will always push a positive narrative which will positively affect the outcome of their profitability. Realtors, and companies alike want you to keep purchasing homes at these extreme prices, and they will all claim that the market is going to get keep hotter. Buy now, before the rates go up. Lock in these rates, while you still can! Bid 50k over, make sure you get this house over the next person. Yup, we heard it all. At the end of the day anyone in the real estate field right now is making a massive amount of money, and they don’t want the train to stop. Now, I don’t blame anyone for wanting to make money and profit, after all this is why all of us work. What I do mind, is people not being able to think for themselves. One thing you have to understand is when everything settles, and you got the house you wanted, and paid 50 grand over asking price, and you just closed, there are a few things that remain. First thing is you just locked yourself into negative equity. Think about it, rarely is any bank going to appraise a home 50K over asking price. Typically this money comes straight out of your pocket, alongside the down payment and closing costs. At the current market, what some would call the Peak or near close peak, do you really think outside of unforeseen circumstances that your house will go up another 50-100K in order for you to break even on that equity. Probably not, and even if it does it won’t stay there long.

The other issue with this is that most homes beings old for top dollar, are not even remodeled. In the Sacramento area where we are located, most homes being sold for top dollar are still construction grade. Now imagine buying a 800K house, paying 50K over asking prices and locking it in at 850K. You move in, and you have to remodel your Kitchen, your bathrooms, new floors, new paint. You are easily looking at another 100K + to get all of that done correctly. Theoretically speaking your now at about 900K-950K total money in. If for what ever reason you need to sell in the next few months or year, you are most certainly walking away at a loss. You have to remember, most people that lost their homes in the 2008 market crash, were not people that couldn’t keep paying their mortgage. They were people that knew they overpaid for their houses, realized they were about 250K in negative equity, and didn’t want to continue paying for a house, that was not worth as much. Call it buyers regret if you will. What do you think will happen next time around? Think about it I bought a 800K home, and the market crashes. All the sudden my house is worth 450K. Yes this is an extreme situation, but follow along, because this is exactly what happened in 2008 and could and will happen again. How will you feel though? Will it make your stomach cringe, knowing you could buy two homes at the price of one? Last time around people got creative, some gave up their properties and went to rent, others had cash on the side and made new purchases, and then foreclosed. Others had spouses help them buy new properties afterwards, parents etc.. Some even waited 8 years for their credited to rebuilt its self and then bought again at a cheaper rate. At the end of the day we are all human, and we are easily pushed to make decisions together. Group Think!

So where are we today? When will the market crash?

Well if we are completely honest with ourselves the market will not crash in 2022. I do believe we will see a slow down with increasing rates. This will eventually increase supply and decrease demand, resulting in healthier bidding for homes. You might actually get to bid 20-30K under asking price, one this occurs. In my opinion this market will fluctuate up and down in small amounts, for the next two to two and a half years. Then, once we come right about election time, I believe we will see one of the most catastrophic real estate crashes in history of this country. I will go out and say that this is just my opinion. I am not a financial annalist, a real estate guru, or anything of the like, I am somebody that is looking at available data, and making my own conclusion. So what is the data I am looking at? Lets start here. The median income in the United States is about 32K a year. About 12% of the US households making between 75-100K and about 15% of US households make between 100-150k per (https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/ ) To put this in perspective, average home prices in the Sacramento, CA area are currently averaging 750k. To purchase a 750K house, you need to make about 150K a year, have less then a 1k of debt a month, meaning credit cards, car notes etc. In addition to this you need to put down 20% which is 150k. Lets say that, 15% of the population in Sacramento can do this, and even with the Bay area folks coming in with cash offers, how sustainable is it for the entire market? Truth is, its not. I believe that outside of cash buyers, people are buying on the edge of their abilities. It takes approximately two years for people to see life changes, which will affect their finances. For example, you buy this house for 750k, at a 150K salary. Now all the sudden you get news your wife is pregnant with twins, so now you need a bigger car. You buy a suv at 70K, with payments of $1400 a month. Gas right now is insane so add that in. Your mother in law which promised to take care of your kids, decided she wants to live out a new romance in Mexico and wont be able to. Now you need to pay for day care at about 3k a month for two kids, or your spouse or you have to stop working. Ouch quite a hit to the wallet. Once again yes, this are extreme scenarios but I am just trying to make a point. These are every day life things that do happen and will happen. People quickly realize that maybe they cant afford that 750K house any longer. Oh but wait, shoot I forgot. You bought that home and offered 50k over asking price. The market has slightly slowed down since, and you need to sell. Your realtor is telling you the best your going to get for it in current market conditions is about 680k, on top of closing costs etc.. So your down the 70k from the purchase price plus the 50k you gave over asking price. That is 120k, plus closing fees and realtor fees at 5% of sale price, with a total of 34K. That is now 154k in the negative. Now since you did put down 150K, luckily you will only be responsible of paying an additional 4K back to the bank, and you may still be able to keep your credit in tact. However, outside of this scenario most might not be as lucky. That is why I predict we will see housing market crash in 2024.