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Sunday, January 16, 2022

2021 Foreclosure Activity Hits All-Time Low

 By Kerry Smith

That tsunami of foreclosures expected when forbearance ended? Barely a splash. ATTOM predicts an uptick that won’t reach “normal levels” until year’s end.

IRVINE, Calif. – In 2021, foreclosure filings – default notices, scheduled auctions and bank repossessions – hit an all-time low, according to ATTOM’s Year-End 2021 U.S. Foreclosure Market Report. The percent of U.S. properties in foreclosure dropped 29% over 2020 and 95% from a peak of nearly 2.9 million in 2010.

ATTOM says it’s the smallest number of foreclosures since it began tracking in 2005. Overall, 151,153 U.S. properties had foreclosure filings in 2021 or 0.11% of all U.S. housing units, down from 0.16% in 2020 and down from a peak of 2.23% in 2010.

Florida still ranks fairly high in a state-by-state ranking, however it’s not the top foreclosure state in the nation, as it was for many months during the Great Recession. And given the overall drop in 2021 foreclosures, Florida foreclosures did not have a large impact on the market.

“The COVID-19 foreclosure tsunami that some people had anticipated is clearly not happening,” says Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “Government and mortgage industry efforts have prevented millions of unnecessary foreclosures, and while it’s likely that we’ll see a slight increase in the first quarter, we probably won’t see foreclosure activity back to normal levels before the end of 2022.”

Bank repossessions down 98% since 2010 peak

Lenders repossessed 25,662 properties through foreclosure (REO) in 2021, down 49% from 2020 and down 98% from a peak of 1,050,500 in 2010 – also the lowest level as far back as data is available – 2006.

Florida ranked second in the number of REOs (2,287) after Illinois (3,472). California (1,839), Pennsylvania (1,293) and Texas (1,236) rounded out the top five.

 “We believe that repossessions will continue to be lower than normal throughout 2022,” Sharga says. “Homeowners have a record amount of equity – over $23 trillion – and over 87% of homeowners in foreclosure have positive equity. This means that most borrowers will have an opportunity to sell their house at a profit rather than lose everything to a foreclosure auction.”

Foreclosure starts at a record low

The number of homes entering the foreclosure process also hit record lows (since first data collection in 2006), dropping 30% in 2021 compare to 2020, and down 96% from a peak of 2,139,005 in 2009.

 “The government’s foreclosure moratorium, the mortgage forbearance program and the mortgage servicing guidelines enacted by the CFPB in August have kept foreclosure starts artificially low over the past year,” Sharga says. “While the recovering economy should prevent a huge increase in defaults, we should see a gradual increase in foreclosure activity as these programs expire, and servicers exhaust all loan modification options for delinquent borrowers.”

Only four states – and not Florida – saw a 2021 increase in foreclosure starts: South Dakota (up 20%), Vermont (up 36%); North Dakota (up 71%) and Nevada (up 85%).

However, ATTOM says three metropolitan areas (population greater than 1 million) saw an increase in foreclosure starts year-to-year, including Miami (up 17%). Birmingham, Alabama, (up 4%) had a bit less, but Las Vegas, Nevada, (up 142%) had notably more.

Foreclosure rates

Overall, Florida’s foreclosure rate (0.23% of housing units had a foreclosure filing) ranked third nationally. Nevada (0.26%) and Illinois (0.23%) had more, while Delaware (0.21%) and New Jersey (0.19%) had less.

© 2022 Florida Realtors®

Mortgage Rates Jump Almost 1/4 Point – to 3.45%

 By Matt Ott

The Fed announced it would tighten monetary policy more quickly, which pushed the 30-year, fixed-rate mortgage higher compared to last week’s 3.22%.

SILVER SPRING, Md. (AP) – Average long-term U.S. mortgage rates jumped again this past week, reaching their highest level since March 2020, just as the coronavirus pandemic was breaking in the U.S.

Mortgage buyer Freddie Mac reported Thursday that the average rate on the benchmark 30-year home loan rose to 3.45% this week from 3.22% last week. It was at 3.5% in late March of 2020 when the pandemic was just starting. A year ago, the 30-year rate stood at 2.79%.

The average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes, rose to 2.62% from 2.43% last week.

“This was driven by the prospect of a faster than expected tightening of monetary policy in response to continued inflation exacerbated by uncertainty in labor and supply chains,” said Sam Khater, Freddie Mac’s chief economist. “The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future.”

Available housing has been in short supply since long before the pandemic started, and prices have risen close to 20% in the past year. Higher mortgage rates could make it even harder for homebuyers to secure a new home.

Mortgage rates have been expected to rise this year after the Federal Reserve announced last month that it would begin dialing back its monthly bond purchases – which are intended to lower long-term rates – to slow accelerating inflation. But even with the expected three or four rate increases in 2022, the Fed’s benchmark rate would still be historically low at around 1%.

On Wednesday, the government reported that inflation spiked to 7% in December from a year earlier, the sharpest such increase in four decades. Earlier Thursday, the Labor Department reported that prices at the wholesale level surged by a record 9.7% in December from a year earlier.

In addition to surging inflation, experts expect robust economic growth and the tight labor market to continue to push rates higher.

Although U.S. jobless claims climbed by 23,000 last week to 230,000, it’s still low by historic standards, and the highly contagious omicron variant doesn’t appear to have triggered layoffs yet.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Tuesday, January 11, 2022

Where the housing market is going in 2022 as told by 7 leading forecast models

LANCE LAMBERT - FORTUNE MAGAZINE

Monday, January 10, 2022

2021 Home Loans Broke Records with 9% Increase

 By Alex Veiga

Mortgage bankers say buyers borrowed $1.6T last year for home purchases, topping the 2005 housing bubble’s $1.5T. They expect another new record this year.

LOS ANGELES (AP) – The fierce competition, low mortgage rates and soaring prices that helped raise mortgage borrowing to record heights last year is expected to drive lending even higher this year, experts say.

Banks lent an estimated $1.61 trillion for home purchases last year, up about 9% from 2020, according to the Mortgage Bankers Association (MBA). That tops the $1.51 trillion lent at the peak of the housing bubble in 2005, the highest on records going back to 1990.

Lenders issued 4.74 million loans to borrowers buying a home last year, down from 4.92 million in 2020, according to the MBA. Even so, the dollar value of for-purchase loans increased last year as home prices surged, often as homebuyers agreed to pay well above a seller’s asking price to outbid competing offers.

“Strong housing demand, persistent increase in housing demand, constrained supply, increase in prices – that’s what led to that record purchase level last year,” said Mike Fratantoni, the MBA’s chief economist.

The housing market has strengthened during the pandemic as many Americans transitioned to working at home, which put additional living space at a premium. Steady job growth, a stock market at all-time highs, rising rents and expectations of higher mortgage rates have also spurred homebuyers, even as skyrocketing prices and a historically low level of homes for sale have shut out many others.

Median U.S. home prices in October were nearly 20% higher than a year earlier, according to the most recent S&P CoreLogic Case-Shiller home price index.

The housing market is expected to continue to sizzle this year, which is why the MBA projects that the dollar value of for-purchase home loans will climb to a new high of $1.74 trillion.

While the for-sale inventory may end up being a little better than in 2021 as homebuilders crank out more homes, it still won’t be enough to give the upper hand to buyers, Fratantoni said.

“2022 is still going to be a seller’s market,” he said. “There’s more demand than supply, and that’s why we’re very confident that prices are going to keep going up.”

Meanwhile, homebuyers are likely going to have less buying power this year to cope with rising home prices.

The extraordinarily low mortgage rates that have helped intensify housing market demand are expected to continue creeping higher in 2022 as the Federal Reserve phases out the monthly bond purchases it has been making since the early days of the pandemic. The central bank has already signaled that it expects to start raising interest rates as early as this spring to check sharply rising inflation.

The average rate on the benchmark 30-year fixed-rate mortgage stuck around 3% in 2021. The MBA’s forecast calls for that average rate to rise to 4% this year.

That’s close to other housing economists’ forecasts. The National Association of Realtors projects the average rate will rise to 3.7% by the end of this year. Greg McBride, chief financial analyst at Bankrate, forecasts rates will peak at 4%, but end the year at 3.5%.

“It will be a bit of a roller coaster ride,” McBride said. “The higher rates we expect in 2022 won’t take the winds out of the sails of the housing market, but it will change the refinancing equation significantly.”

Homeowners borrowed some $2.32 trillion in 2021 to refinance their mortgage, down about 12% from 2020, when refinancing hit a record high, according to the MBA. Taken together, mortgage refinancing in 2021 and 2020 amounted to nearly $5 trillion.

The MBA forecasts mortgage refinancing will fall to $870 billion this year, the lowest since 2018′s $467 billion.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Thursday, January 6, 2022

U.S. Home Price Forecasts through November 2022

 

CoreLogic HPI Forecasts

HPI National Change

November 2021 National Home Prices

Home prices nationwide, including distressed sales, increased year over year by 18.1% in November 2021 compared with November 2020. On a month-over-month basis, home prices increased by 1.3% in November 2021 compared with October 2021 (revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results).

Forecast Prices Nationally

The CoreLogic HPI Forecast indicates that home prices will remain flat on a month-over-month basis from November 2021 to December 2021, and increase on a year-over-year basis by 2.8% from November 2021 to December 2022.

HPI National Change

“Over the past year, we have seen one of the most robust seller’s markets in a generation. While increased interest rates may help cool down homebuying activity, we expect 2022 to be another strong year with continuing upward price growth.”

-Frank Martell
President and CEO of CoreLogic

This graph shows a comparison of the national year-over-year percent change for the CoreLogic HPI and CoreLogic Case-Shiller Index from 2000 to present month with forecasts one year into the future. We note that both the CoreLogic HPI Single Family Combined tier and the CoreLogic Case-Shiller Index are posting positive, but moderating year-over-year percent changes, and forecasting gains for the next year.

Economic Impact on Home Prices

While 2021 was a record-breaking year for U.S. home price growth, for many prospective buyers the hot housing market will continue to exacerbate ongoing affordability challenges into the new year — and beyond. Though home price growth remains at historic highs, it is projected to slow over the next year. However, economic growth and inflation will most likely lead to increases in mortgage rates, which will further erode affordability.

“Interest rates on 30-year fixed-rate mortgages averaged a record low of 2.96% during 2021, helping to keep monthly payments low in the face of record-high home prices. However, the Federal Reserve appears poised to allow interest rates to rise in 2022. Higher rates will intensify buyer affordability challenges, especially in overvalued local markets.”

– Dr. Frank Nothaft 
Chief Economist for CoreLogic

HPI National and State Maps – November 2021

The CoreLogic HPI provides measures for multiple market segments, referred to as tiers, based on property type, price, time between sales, loan type (conforming vs. non-conforming) and distressed sales. Broad national coverage is available from the national level down to ZIP Code, including non-disclosure states.

Nationally, home prices increased 18.1% year over year in November. No states posted an annual decline in home prices. The states with the highest increases year-over-year were Arizona (28.6%), Florida (25.8%), and Idaho (25.5%).

 

HPI Top 10 Metros Change

The CoreLogic HPI provides measures for multiple market segments, referred to as tiers, based on property type, price, time between sales, loan type (conforming vs. non-conforming) and distressed sales. Broad national coverage is available from the national level down to ZIP Code, including non-disclosure states.

These large cities continue to experience price increases in November, with Phoenix leading the way at 30.5% year over year.

Markets to Watch: Top Markets at Risk of Home Price Decline

The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that metros such Prescott, Arizona; Worcester, Massachusetts; and Lake Havasu-Kingman, Arizona, are at the highest risk (50-70% probability) of a decline in home prices over the next 12 months. Merced, California, and Springfield, Massachusetts, are also at moderate risk (25-50%) of a decline.  

Summary

CoreLogic HPI features deep, broad coverage, including non-disclosure state data. The index is built from industry-leading real-estate public record, servicing, and securities databases—including more than 40 years of repeat-sales transaction data—and all undergo strict pre-boarding assessment and normalization processes.

CoreLogic HPI and HPI Forecasts both provide multi-tier market evaluations based on price, time between sales, property type, loan type (conforming vs. non-conforming) and distressed sales, helping clients hone in on price movements in specific market segments.

Updated monthly, the index is the fastest home-price valuation information in the industry—complete home-price index datasets five weeks after month’s end. The Index is completely refreshed each month—all pricing history from 1976 to the current month—to provide the most up-to-date, accurate indication of home-price movements available.

Wednesday, January 5, 2022

Higher Rates and Replacement Costs Will Raise Property Insurance

 By Ron Hurtibise

Every Florida property insurance company calculates “replacement cost” differently, but almost all will charge more next year – in addition to other standard increases.

FORT LAUDERDALE, Fla. – Embattled by years of property insurance rate increases, Florida homeowners are about to get hit by a double whammy: Your insurance costs will likely rise even higher than you expected next year as companies increase the replacement value, or the estimated cost of replacing a damaged home, to reflect the skyrocketing costs of construction materials and labor.

And those higher values will be multiplied by higher rates approved by state regulators over recent years in response to increased claims costs and related litigation.

“I empathize [with policyholders], but it is reality,” said Paresh Patel, founder and CEO of Clearwater-based Homeowners Choice and TypTap insurance companies. “Costs of labor, materials, etc., are going up. This is inflation.”

If you are a customer of Citizens Property Insurance Corp., the so-called insurer of last resort, your replacement value is likely to increase sharply and drive up your overall renewal bill. In some cases, inflation will push your replacement value over $700,000 – the eligibility threshold for Citizens coverage in all counties except Miami-Dade, where the coverage threshold is $1 million.

Citizens customer Bob Colgan was stunned in early December when his agent told him he would have to shell out $900 more next year to renew coverage for his Lake Worth home.

Colgan knew that state law requires Citizens to cap annual rate increases at 10%. But the premium-cost increase his agent showed him – from $2,673 to $3,573, or 34% more – far exceeds the rate-hike limit adopted by the state Legislature a decade ago to keep coverage affordable for Citizens customers.

“I was shocked,” Colgan said. “Why do they need these big increases? We haven’t had a major hurricane in years. I don’t understand it.”

The increase was driven by a dramatic hike in what Citizens estimated it would cost to rebuild the home and replace its contents if destroyed by a hurricane, fire or other calamity. And because premiums are determined by multiplying rates by a home’s value, those replacement-cost increases can make that 10% rate increase cap feel like a bad joke.

According to the estimate, the cost to replace Colgan’s home increased from $233,000 to $278,700 – a 20% hike. After getting the estimate, Colgan asked another insurance agent to recalculate the renewal price. That agent said the replacement-cost increase seemed higher than it should have been and resubmitted the renewal application based on new calculations. Citizens has not yet approved the revised application, Colgan said.

But Citizens spokesman Michael Peltier said a 20% replacement cost hike is in line with what all single-family homeowners can expect to see on their next Citizens bill.

Rising construction costs blamed

Until this year, the company typically increased replacement values by 1% to 3% annually to keep up with normal inflation rates, Peltier said. This year, replacement values have been increased from 15% to more than 20% in some areas, he said.

One possible reason is that Citizens changed the software used to determine replacement values. As of July 1, agents have been directed to use a new cost estimator developed by CoreLogic Spatial Solutions LLC.

CoreLogic officials did not respond to requests for comment.

In an Oct. 5 bulletin, Citizens alerted agents that “inflation factors for renewal policies are higher than previous years to address increasing costs in building materials and to ensure the dwelling is insured for full replacement cost.” Inflation factors, the bulletin said, may increase replacement values as high as 25%.

Inflation impacts are adjusted quarterly in CoreLogic’s cost estimator and could result in further premium hikes after Jan. 1, the bulletin said.

Replacement value increases “do increase the premium,” Peltier said in the email, “but failure to make the adjustment could leave the policyholder significantly underinsured.”

Construction costs skyrocketing

Replacement values are rising for property insurance customers across the nation, said Mark Friedlander, spokesman for the Insurance Information Institute, an industry-backed research and trade group.

A big reason is the price of lumber, which increased 16.5% in 2020 – significantly higher than last year’s 1.4% overall inflation rate. So far this year, lumber prices have moderated and increased just 2.8% compared to 2020. But overall inflation, which includes costs of labor and other building materials, is up 6.3%, institute data states.

Between August 2020 and August 2021, costs of construction materials increased 23% while labor costs rose by 4.5%, according to figures from the Associated General Contractors of America provided by Citizens.

Inflation’s effects on insurance costs are particularly painful in Florida, where premiums have been rising as much as 40% to cover costs of increased litigation and aggressive claims solicitation by roofing and water restoration companies.

Facing even more price hikes, typical Florida homeowners are two years away from seeing average home insurance costs exceed what they pay each month toward their mortgage loans, said Ryan Papy, president of Palmetto Bay-based Keyes Insurance.

Patel estimates that most private market insurers will increase replacement values of their customers’ homes between 7% and 15% when policies come up for renewal over the next year. Rather than reevaluating each insured home separately, Patel said his company will increase replacement value of all houses by 7% after Jan. 1.

Each insurer approaches replacement value calculations differently, Papy said, which can make it difficult to predict how any individual policy premium will be affected by the rise of inflation.

Locke Burt, president and CEO of Ormond Beach-based Security First Insurance Co., also acknowledged that his company increased replacement values. He didn’t estimate the average replacement value increase, saying that company officials who could determine that number were out of the office between Christmas and New Year’s Day.

Keeping Citizens from growing

Citizens, created to provide affordable insurance coverage for homeowners otherwise shut out of the insurance market, might be seeking steeper replacement value hikes as part of a strategy directed by Carlos Beruff, chairman of the company’s board of governors, to ward off further growth by raising prices as high as legally possible.

Beruff and the board are asking state insurance regulators to approve rate increases even higher than those recommended by the company’s actuaries to scare off potential new customers and force existing customers to seek coverage from private market insurers. As private market insurers have been withdrawing from South Florida and other urban markets in recent years, tens of thousands of homeowners have had no choice but Citizens.

Meanwhile, those homeowners have caused Citizens to grow from 420,000 policies in 2019 to 748,000 in early December. Beruff and other officials say they are worried that if Citizens were to grow too large, it wouldn’t be able to pay all claims after one or more catastrophes. If that happens, Citizens customers will face surcharges of up to half of their annual policy costs. If that money doesn’t cover all claims costs, all property insurance customers in Florida will face surcharges to cover any shortfall.

Those officials, which include state legislators, say the annual 10% rate cap has made the company too attractive as an alternative to private-market companies that cost more.

To make it less so, the Florida Legislature last spring approved increasing the rate cap from 10% to 11% on Aug. 1 and to 15% by 2025. Then on Dec. 15, Beruff led the board of governors to approve average rate increases at the maximum 11% for all customers statewide.

New customers can only be eligible for Citizens if no coverage is available from a Florida-regulated private market insurer, or if the only available coverage exceeds the cost of Citizens by more than 20%.

Citizens did not respond to questions about whether its high replacement value increases are part of the company’s strategy to drive up costs.

A comparison of total insured value per policy from insurance company data downloaded from the Florida Office of Insurance Regulation showed that average property values of 189,328 Citizens customers in Broward, Palm Beach and Miami-Dade counties increased 11.5% between the third quarter of 2020 and the same period in 2021.

Insured values of properties insured by four private-market carriers increased at lower rates, ranging from 3.2% to 5.4%. Those numbers will climb in future reports, Patel said.

Papy said it would make sense for Citizens, restricted by the rate-hike cap, to disproportionately increase replacement costs as part of the company’s effort to keep pace with private-market insurers’ prices in hopes of driving customers back to those companies.

“Overall, the more private market carriers we have, the better it is for the consumer,” he said.

Citizens policyholders have the right to challenge replacement cost estimates. But they must use estimates from recognized sources – such as CoreLogic or a competing replacement cost estimator; a licensed insurance appraiser; property inspector; general contractor; architect or engineer.

Many homeowners will decide not to seek an alternative valuation because it can cost $500 and more, said Paul Handerhan, vice president of the consumer-focused watchdog group Federal Association for Insurance Reform.

Papy and Dulce Suarez-Resnick, vice president of the Miami-based Acentria Insurance agency, both said by increasing replacement values at steep rates, Citizens is pushing out customers whose home values climb above $700,000 in most of the state, or above $1 million in Miami-Dade.

If no private market offers are available, “how are they going to get coverage?” Papy asked.

© 2021 South Florida Sun-Sentinel. Distributed by Tribune Content Agency, LLC.

Can a Son Use My Credit Score to Buy a Home?

 By Gary M. Singer

RE Q&A: A mother wants to share title for one year and sign the home over to him because she has a stronger credit score. Is there a downside?

FORT LAUDERDALE, Fla. – Question: What are the pitfalls for a mother to use her credit to buy a house for her thirty-something son in another state? Both of our names would be on the title. He would make the down payment and make the mortgage payments. After a year, how would I remove my name? – Peggy

Answer: As a parent myself, I understand the urge to help your child.

This is a common scenario I see in my law practice, and sometimes it works out fine. That said, it often turns into a disaster for the family member.

Your credit is yours and not something to use for someone else. If your son cannot qualify for a loan, there is a good chance he cannot afford the payments or has a history of not paying his bills. You will be on the hook if your son does not pay the mortgage.

Because both of your names are on the title, you would be unable to sell the home to pay off the mortgage without his consent.

You could also be liable if someone gets hurt at the property. The injured person would sue all property owners to recover for their damages.

While you can remove your name from the property’s title, you cannot take yourself off the mortgage loan even if you no longer own part of the home. You would then be in the unenviable position of personally owing money collateralized by the property you have no interest in or control over.

Finally, you must be truthful when applying for a mortgage. You will need to inform the lender that you are not paying the deposit or making the monthly payments. A lender probably will not want to make a loan in this circumstance, but not being truthful when applying for credit is a crime.

If you still want to go through with this, you should speak with a local attorney to properly structure the transaction to minimize the pitfalls.

Copyright © South Florida Sun Sentinel, Gary Singer. All rights reserved.

Tuesday, January 4, 2022

Zillow's Hottest Markets of 2022

 

Why Tampa will be 2022's Hottest Market

  • The Sun Belt dominates Zillow’s list of hottest housing markets for the second year in a row. Tampa, Jacksonville, Raleigh, San Antonio and Charlotte are expected to lead the U.S.
  • Last year’s hottest market, Austin, fell to No. 10 this year. 
  • New York, Milwaukee, San Francisco and Chicago are expected to be the coolest housing markets in 2022, but sellers will have the upper hand even in cooler markets.

The housing market in 2022 is expected to remain hot overall, with many of the same trends that drove the market to new heights this year still firmly in place as we head into the New Year. But while all of the nation’s 50 largest markets are expected to grow healthily in 2022 and sellers nationwide should expect to remain in the driver’s seat, there can be only one Number One – and Zillow expects Tampa to top the list, with a host of relatively affordable and fast-growing Sun Belt markets following closely behind.

Jacksonville, Raleigh, San Antonio and Charlotte fill out the list of the top five hottest markets for 2022, each buoyed by a combination of strong forecasted home value growth, strong economic fundamentals including high job growth, fast-moving inventory and plentiful likely buyers. Additionally, these markets have historically not been particularly sensitive to rising mortgage interest rates or a slowing stock market – two risk factors for housing and the economy overall as the calendar turns. 

The coolest markets of the year are expected to be New York, Milwaukee, San Francisco, Chicago, and San Jose – each characterized by relatively fewer new jobs and less favorable demographic trends than other large markets, though still all expected to fare just fine on their own next year.

Price Growth

Home value growth in 2021 consistently broke records, both nationally and in many local markets. This growth has been fueled by historically low mortgage interest rates, pandemic-influenced decisions on where households want to live, and demographic shifts – both from aging millennials and retiring/downsizing boomers – that have all combined to keep housing demand very high. At the same time, inventory of available housing has been limited, as builders play catch-up after years of underbuilding and sellers list their homes in fewer numbers. None of those trends is expected to change much in 2022 from 2021, and limited housing supply coupled with sky-high housing demand is a classic Econ 101 recipe for rising home values.

That said, many of the fastest growing markets in 2021 are expected to slow somewhat in 2022, making way at the top for other markets. Tampa is expected to rise from fourth-fastest home value growth in 2021 to fastest in 2022, Raleigh from third to second and Jacksonville from seventh to third. The fastest-growing markets in 2021, Austin and Phoenix, are expected to fall to seventh and eighth, respectively.

Inventory & Velocity

Both restrictive supply overall – fewer sellers willing to sell, fewer homes built by builders – and sky-high demand can both lead to low inventory. The former is probably self-explanatory, but the latter is also interesting: When demand is very high, even a decent number of homes on the market can still sell very quickly given a high number of buyers, contributing to an overall low level of homes on the market at any given time even if the pace of new listings is healthy. And when new listings are quickly snatched up, it’s likely that means some buyers were left out, either moving too slow to secure a home while it was on the market, or not being able or willing to make a competitive enough offer. 

We can see where buyers had the hardest time finding a home in 2021, and so where there may be the most pent up demand in 2022. The fewest (standardized) listing days per home were in New Orleans, Cleveland, and Kansas City. These markets are forecast to have less deceleration than most other markets as well.

Job Market & Building

Total nonfarm payrolls stood 2.1%, 3.1 million jobs, lower this November than in November 2019. At the same time (November 2019 to October 2021), 3.1 million new housing units were authorized by building permits. So nationally, we have lost almost exactly one job for every new housing unit built. As the labor market recovers, several major metros have actually added more jobs than new units – despite the pandemic. Tampa added 0.63 added jobs per new unit, second only to Salt Lake City at 0.99 added jobs per new unit. Also with job gains were Phoenix, Austin, Jacksonville, Dallas, Raleigh, and San Antonio.

Demographics

Baby Boomers and millennials represent two enormous generations, both very active in the housing market. Boomers are hardly exiting the market as they age, staying active and purchasing homes in the Sun Belt as they retire and/or move to be closer to grandchildren etc. And millennials are just beginning to age into their prime home buying years as they hit their early-mid thirties, a time when many Americans traditionally begin to settle down, start families and think differently about the type of home and type of community they want and need. 

The boomer tide in the for-sale housing market is expected to continue to rise for at least the next 8 years; younger millennials will be hitting first-time home buying age at about the same time, meaning the 2020’s will be a period of sustained underlying demand in the housing market. Year by year these effects will be felt differently across markets. In 2022, the market with the most demographic lift in the for-sale market is Austin, with a trend suggesting the formation of 3.4% more owning households (assuming there are homes available for them to buy). Orlando follows at 2.8%, and then Tampa at 2.7%. Of the largest 50 markets, 29 have natural owner household growth exceeding 1% in one year, the rule-of-thumb rate at which the housing stock increases nationally. The markets with the least demographic pressure for growth are Pittsburgh, Hartford and Buffalo.

Risks

There are two large known risk factors for housing markets in 2022. First, mortgage interest rates are expected to rise in 2022, making home loans more expensive for aspiring buyers. At the margin, this would restrict the inventory accessible in the most expensive markets, potentially driving up competition for the lowest-priced homes in those markets or removing them from consideration altogether. Historically, home value appreciation in the following markets has strong negative correlation with interest rates — so if interest rates go up, these markets are likely to slow the most: San Diego, New Orleans, Washington DC, Los Angeles, San Jose and San Francisco.

Second, forecasts on the performance of stocks are incredibly wide, with analysts’ 2022 year-end targets ranging from -7% to +13%, slower growth in any case than what we’ve seen in the last 2 years if not declines. A slower stock market would mean buyers are bringing relatively less to the table for a down payment in 2022. This would most affect markets where there are a lot of first time buyers or where more buyers are entering from lower cost areas, bringing less equity from their previous home. (Or if housing is treated as an asset it could mean a substitution to housing in the next few months. What follows addresses only the downside risk.) In the following markets, growth has strong positive correlation with stock market returns — so if the stock market falters next year, we’d expect home value growth in these places to slow disproportionately: Phoenix, Las Vegas, Cincinnati, Hartford, St. Louis, Miami, Cleveland, Los Angeles and San Jose.

 

Methodology

The final index was based on the following data:

  • Forecasted annual home value appreciation in Nov. 2022
  • Forecasted acceleration in home value appreciation, Nov. 2021-Nov. 2022
  • Standardized listing days per home, Jan. 2021-Nov. 2021
  • 2-year change in total non-farm employment per 2-year residential building permit total
  • Projected change in owner households, 2021-2022

Metrics were normalized given the available metro-level data to standard deviations from the mean, with mean and standard deviation weighted based on housing unit counts. Standard scores were capped at ±1.96 so as not to overly penalize any metro for extreme data points. The final index was reached by taking the average across metrics, with standardized HPA acceleration down-weighted by half.

Home values and expected home value growth were taken from published Zillow Home Value Index and Zillow Home Value Forecast data available at the time of analysis (data through November 2021 and forecast data through November 2022 was the latest available).

Inventory and velocity are represented by standardized listing days per home, using published Zillow data for Median Days to Pending and New Listings. Similar to a metric of inventory, this will capture both the number of homes and speed of sale. However, markets differ structurally such that time on market is not always directly comparable for gauging relative market heat. To correct for these differences we adjust Median Days to Pending using pre-COVID region fixed effects. Then we multiply by new listings to get standardized listing days, and then divide by the total number of homes to put metros of different sizes on the same scale.

Job market and building data took the ratio of the change in employment to the total permitted residential structures. Total non-farm employment (seasonally adjusted) comes from the U.S. Bureau of Labor Statistics Current Employment Statistics survey. We used the 2-year change in employment Nov. 2019-Nov. 2021.

Building permit data comes from New Private Housing Structures Authorized by Building Permits (BPPRIVSA), retrieved from FRED, Federal Reserve Bank of St. Louis. We sum over the 2-year period Oct. 2019-Oct. 2021.

To assess the underlying demographic pressure in the for-sale housing market, we used the projected change in homeowner households 2021-2022. This projection accounted for population aging and migration patterns. Data came from the American Community Survey (2018 ACS 5-year sample, 2019 ACS 5-year sample, and 2019 ACS 1-year sample) downloaded from IPUMS USA, University of Minnesota, www.ipums.org.

In the first stage, we used the larger 5-year sample to calculate entry and exit from the population (due to birth, migration, death) by age. For each birth cohort the age-specific outflow was set to be the difference between the cohort’s population in 2019, less in-migration, and the cohort’s population in 2018. The population inflow and outflow divided by the population in 2018 yielded the rate of change entering their 2019 age.

In the second stage, we applied the age-specific rates of population change to the 1-year sample, iterating over 2020-2022. We filtered to ages 18-89 to avoid low population counts and unreliable migration trends at the highest ages. Keeping constant the observed age-specific share of the population who is the head of household of an owner-occupied housing unit (the “owner-headship rate”), we calculated the percentage change in the number of owner-heads expected in 2022, compared to 2021, by age. Summing these changes gave us a demographically expected rate of increase in homeowner households in 2022.

All population and owner-headship counts were smoothed across ages over a 5-year centered window prior to taking rates and changes.

 

[1]At the time of publication, the Zillow Home Value Forecast only covered the period ending November 2022. Throughout this piece, this data for the first 11 months of 2022, but not the full year, is used ass a proxy for full-year 2022 data.