Housing Market Trends

November 17, 2021

As 2021 begins to wind down, all eyes are on what will happen in 2022 with housing prices and mortgage interest rates. A few thoughts:

The Federal Reserve has started “tapering” its “asset purchases” this month.  Why is that important?  It may signal an increase in interest rates sometime in 2022 or 2023.  For context, during the pandemic for the last year and a half or so, the Fed has been injecting money into the economy by buying around $120 billion worth of bonds and mortgage backed securities each month. The “taper” means the Fed is going to reduce these purchases by $15 billion per month until it stops. Specifically, less money will be put into the economy by the Fed. Once the Fed is done with its ‘taper’, it has signaled that an interest rate hike may be on the horizon in the back half of 2022, and potentially additional hikes in 2023 and 2024, bringing rates from near zero today to anywhere from 1.75% to 2% by 2024 (Source: CNBC). An interesting sidebar for another day is characterizing how Fed gets the money to make these purchases.

The median sales price in LA County has declined from a high of $835,000 in June to $810,000 in October. Source here. New listings went from 8,769 in July down to 6,893 in October, and housing supply went down to a 12 month low of 1.8 months.  Days on the market has crept up from 9 in July to 12 in October. It’s a little counter-intuitive to think that prices have crept down when supply is getting tighter, but it may be a reflection that buyers are simply starting to sit out the market. Additionally:

Inflation is taking a chunk out of people’s spending power. Inflation rose over 6% from a year ago last October. Energy prices have been up almost 60% this year, and food prices are up 5.3% from last year. (Within the food category, meat, poultry, fish and eggs are up almost 12% from last year). The issue is systemic; COVID upended supply chains across the world, creating havoc across historical supply & demand patterns.  

The “SALT” deduction is still under debate in the “Build Back Better” bill in Congress.  “SALT” stands for “State And Local Taxes” deduction, which was capped at $10,000 in 2017 under Donald Trump. This primarily impacted high property value states, such as California and New York. Right now the House passed a version of the bill that increases the SALT deduction to $80,000; however, its fate is somewhat unclear in the Senate. The amount of property taxes you pay that are deductible from your income tax is directly linked to this bill and its impact on home affordability.

What does all of this mean for a seller or a buyer? Both sellers and buyers need to be aware of these trends if a home sale or purchase is in your near future. While the potential for rising interest rates and tax policy are of obvious interest to buyers, they are also relevant to a seller as availability of funding and affordability go directly to the number of buyers able to bid on your home. As a result, if a home sale or purchase is in your near term plans, since that mortgage rates are still at historic lows it may be a good time to jump into the market.   

Finally, I’m pleased to let you know that I’ve received the Luxury Homes Certification from the Residential Resource Council.  Our entire team believes everyone should feel like they are receiving first-class service, from established homeowners to first-time home buyers.  Contact me today to find out how we can help you achieve wealth with real estate!