Nicole Friedman of The Wall Street Journal kicks off the week with new data around existing home sales, which jumped to a 15-year high last year. Strong demand and low rates are expected to keep this trend going into 2022. “But the recent rapid rise in interest rates has some housing economists forecasting that the market frenzy will subside in the second half of the year.”
National Association of Realtors (NAR) recently released data showing that:
- Home sales totaled 6.12 million in 2021, a jump of 8.5% from 2020, and the highest annual level since 2006.
- By December, inventory of unsold existing homes fell to a historical low of 910,000
- The above is the equivalent to 1.8 months of monthly sales pace, a historical low since January 1999.
- In December, annualized home sales slowed to 6.18 million, a 4.6% drop month-over-month.
Lawrence Yun, NAR’s chief economist, noted: “December saw sales retreat, but the pull back was more a sign of supply constraints than an indication of a weakened demand for housing…Sales for the entire year finished strong, reaching the highest annual level since 2006…I also expect home prices to grow more moderately by 3% to 5% in 2022, and then similarly in 2023 as more supply reaches the market.”
Zillow released data last week that shows that housing inventory has dropped below 1 million units, a record-low. This is down 40.5% from December 2019.
Source: Zillow (Jan. 2022)
“[T]he speed of the market has gradually slowed down since reaching a peak early in the summer. In June, the typical U.S. home spent just one week on the market before going under agreement. That time frame has risen every month since, to roughly 13 days in December (up from about 11 in November)…But while homes staying on the market less than two weeks before selling is still incredibly fast for midwinter, those extra few days may matter a lot to those buyers that need a little more time to assess their options.”
Diana Olick of CNBC reports on sales data, noting that the strong NAR data points to our largest generation—millennials—entering prime homebuying years. “There were just 910,000 homes for sale at the end of December, a drop of 14.2% from December 2020. Sales could likely have been higher were it not for incredibly low supply…At the current sales pace, that represents a 1.8-month supply. A balanced market between buyers and sellers is usually a supply of four to six months. Both the total supply and month’s supply are at all-time lows on the NAR’s inventory count, since it began tracking in 1982.”
According to Lily Katz and Tim Ellis of Redfin, the average monthly rent jumped 14.1% year-over-year to $1,877 in December 2021. This was the largest jump since Redfin started tracking in February 2019. Of note, the national monthly mortgage payment also climbed 21.6% year-over-year, the biggest jump on record for Redfin.
Source: Redfin (Jan. 2022)
Redfin Chief Economist Daryl Fairweather notes: “The growth in mortgage payments has been driven by both climbing prices and climbing mortgage rates…And those rising mortgage costs push more potential homebuyers into renting instead, which pushes up demand and prices for rentals. Mortgage rate increases are accelerating, which will cause both mortgage payments and rent to grow throughout 2022.”
Ben Verde of Inman (subscription required) comments on the Redfin data, noting that “Some cities saw rents increase over 30 percent year over year, with Austin, Texas, topping the chart in terms of rent increases. Rents increased 40 percent in the city…The second highest rent increases all came from the New York City area, with suburban Nassau County, Newark and New Brunswick, New Jersey, and New York City itself all logging rent increases of 35 percent.”
The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found that 92% of apartment renters made a full or partial payment in December 2021. This is compared to 93.1% in November, and 93% in October.
Source: NMHC (avail. Jan. 25, 2022)
Molly Boesel of CoreLogic comments on their own rent data showing that single-family rent growth jumped 11.5% in November 2021 alone, which is the fastest year-over-year growth in 16 years.
Source: CoreLogic (Jan. 2022)
The National Home Builder Association (NAHB) reports that although there has been a trend upward in positive builder sentiment, that is now being dampered by rising inflation and supply concerns. “The most pressing issue for the housing sector remains a lack of inventory. Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots,” Robert Dietz, NAHB Chief Economist, stated.
That said, Jacob Passy of MarketWatch reports that new home construction as well as building permits are on the rise. There is a growing backlog of permitted construction projects that haven’t begun work, indicating that supply concerns may ease as we move into 2022.
Fannie Mae released a forecast stating that there were 1.5 million homes under construction, a record high since 1973. This is partly due to the supply chain issues causing delays in home construction completions. “While we continue to expect 2022 to be a strong year for starts as builders eventually work through their backlogs and supply chain difficulties ease, the recent increases in mortgage rates present some downside risk to this forecast.”
Commenting on the above reality is Richard Branch, chief economist for Dodge Construction Network:
“The increase in construction starts was impressive given the many challenges the industry faced during the year. Higher material prices, labor shortages, and multiple waves of COVID infections threatened to dampen the recovery…However, construction remained resilient and persistent throughout the year in the face of these difficult issues. While these challenges will remain in 2022, the industry is well-positioned to make further gains fed by a growing pipeline of nonresidential projects waiting to break ground and the infusion of money directed towards infrastructure.”