Housing MarketPodcasts

Economist predictions for inventory, mortgage rates in 2022

Even while COVID variants affect everything from school closings to supply chains, demand for housing remains unabated. In a rapidly changing environment, what should those in real estate and mortgage expect as far as housing inventory, mortgage rates, home prices and more? In this episode of HousingWire Daily, Editor in Chief Sarah Wheeler and HW+ Managing Editor Brena Nath discuss articles by economists in our forecast series that tackle these issues.

Here’s a small preview of the interview, which has been lightly edited for length and clarity:

Sarah Wheeler: Today we’re talking about an economic forecast series you set up that our audience is already really loving. Each of these forecasts has a different focus so the economists are diving into different areas… The one from Mark Fleming — it’s called The big short in housing supply isn’t going away — and it looked at the demand/supply imbalance in housing, since we know we’re at all-time lows in inventory in some areas. Tell us a little bit about that one.

Brena Nath: This was an exciting piece to get from Mark, mostly because inventory is that topic that a lot of people are focused on… Something that was interesting that he touched on is, let’s take a look back, going to the end of last year, and the supply of homes for sale nationwide as a percentage of occupied residential inventory remained near historic lows at 1.19%. So, what does that mean outside of a percentage? Basically, only 119 out of every 10,000 homes were for sale, which is much lower than the historical average of 2.5%. And that’s where we closed out the year last year. So that’s going to continue to be a problem as we enter into 2022.

HousingWire Daily examines the most compelling articles reported across HW Media. Each afternoon, we provide our listeners with a deeper look into the stories coming across our newsrooms that are helping Move Markets Forward. Hosted by the HW team and produced by Elissa Branch.

Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:

Sarah Wheeler: All right. We are ready to jump in. Brena, welcome back to “HousingWire Daily.”

Brena Nath: I always enjoy being on the podcast. Thanks for having me.

Sarah Wheeler: Of course. So, today we’re talking about an economic forecast series you set up that our audience is already really loving. We’re seeing huge traffic on it. It’s leading up to an event. So, each of these forecasts has a different focus. So, the economists are diving into different areas. It’s not the same thing. Give us an overview of which economists are on that list.

Brena Nath: This has been great to coordinate. We have everyone from who we just went live with an article yesterday from CoreLogic that they kind of dove into five predictions on what’s going on in the housing market. We also published a piece, I think it was earlier this week or last week, from Mark Fleming at First American where he dove into housing inventory.

So, what we’ve seen across the board is everyone wants to know the key themes of course that come to mind, where are mortgage rates headed, where are home prices headed, where is demand coming from. And so these forecasts pieces that come from CoreLogic, First American, we have one coming up from NAR, Genworth, our own Logan Mohtashami, kind of digging into these aspects, but they also take those high-level things that everyone’s watching and then go a step beyond that and say, “What does this mean for you?” or “What are the takeaways that you need in order to navigate the year?”

Sarah Wheeler: Yeah. But the one from Mark Fleming, it’s called “The big short in housing supply isn’t going away.” So, interesting. And it really looked at the demand-supply imbalance in housing, which we know we’re at all-time lows in inventory in some areas. But tell us a little bit about that one.

Brena Nath: This was an exciting or very interesting piece to get from Mark mostly because inventory is that topic that a lot of people are focused on. We see it firsthand, anyone who bought a house over the last year even beyond. And so it’s a top question if you Google it. Where is inventory headed? Are we ever going to get more supply?

And so something that was interesting that he touched on is let’s take a look back first going to the end of last year, and the supply of homes for sale nationwide as a percentage of occupied residential inventory remained near historic lows at 1.19%. So, what does that mean outside of a percentage? Basically, out of only 119 in every 10,000 homes were for sale, which is much lower than the historical average of 2.5%. And that’s where we closed out the year last year.

So, what’s gonna continue to be a problem as we enter into 2022, a big theme there that we’ve all heard about is homebuilder and homebuilder supply. So, they did a lot that are really anything that they could to try to keep up with demand in 2021, but inventory is still a problem. There was not only a shortage of home for sales, but they’re also dealing supply chain issues, which we witnessed in all parts of the economy. They’re also dealing with rising material cost along with just even appliances that go into lumber.

And so the extra factor there would also be skilled labor, trying to find people to build these houses. So, many of these supply chain challenges facing builders existed prior to the pandemic, but they worsened considerably over the course of the pandemic. And however, the underbuilding and the resulting accumulation of this housing stock as Fleming explains relative to the growing housing demand will also be preceding the pandemic. So, in other words, it’s not something that’s gonna go away heading forward, but it’s continuing to be an issue as we head into 2022.

Sarah Wheeler: Well, and he really made the point there that a lot of people wanna be like, “Oh, you know, what are the builders doing?” But the builders are constrained as he said. Even lumber prices have kind of come back up. That was a huge issue in 2020, 2021, and then it kind of calmed down, and now we’re back at it.

Brena Nath: Well, lumber was an ongoing issue. I remember seeing a couple of viral TikTok, which says something. If lumber becomes a viral TikTok, that just shows how many people all the way to Gen Z are noticing how wild lumber prices are. I even got a joke the other day from someone who was driving behind a guy that had a whole load of lumber in the back of his pickup truck and made the joke that that was probably worth more money if you stole the lumber out of his pickup truck than the pickup truck itself even amid car prices being so high right now. So, we’re in this weird world where if you’re just driving across town and stop to get gas, the lumber in your back of your car is all of a sudden a hot commodity.

And so lumber, as I just previously noted, I spent most of, you know, looking back to the spring and summer of 2020 when lumber prices were high enough to add almost $30,000 to the price of an average new single-family home. And this is according to statistics from the National Association of Home Builders. Things haven’t gotten too much better. It’s definitely an issue that NAHB continues to talk about. They swore in their new chairman, and they write weekly or monthly newsletters in Trade Desk for their me mbers in HousingWire. That way they can see what’s going on. And it continues to be a topic.

So, Jerry Konter who’s new we’re seeing at NAHB, he kind of goes on, you know, “I’m a builder myself. I’m keenly aware of the many issues facing our industry, including the cost and availability of labor, the scarcity of building lots, and the high cost of excessively burdensome regulations. Looking at those challenges, that is a key issue that NAHB is looking into.” So, they’re looking at the local, the state, nationwide levels to implement creative solutions that can address the nationwide affordability crisis. And as someone, the magazine editor who’s looked at every single Trade Desk from NAHB over the last year, that was continually a topic that they’re addressing, meaning that as we go into 2022, it’s continuously going to be a topic moving forward.

I know a lot of these answers… As we look at lumber, as we look at home prices and demand, a lot of my answers to you are saying, “Hey, it’s gonna continue to be an issue. Inventory is gonna continue to be an issue,” which maybe isn’t what a lot of people wanna hear, but it’s helpful, definitely, to know, okay, it is continuing to be an issue, but let’s take a step, look at what are the issues underneath that we can work on or how it’s not addressing them or what are we going to do about it.

Sarah Wheeler: And when you say NAHB, you mean the National Association of Home Builders. I know maybe some people aren’t as familiar with that.

Brena Nath: Correct. Correct.

Sarah Wheeler: Yeah. No. It’s really interesting. I do feel like one of the things that Mark talks about there is that you can’t buy what’s not for sale. And even as much as we would love to see new inventory for all those reasons you just outlined, not a lot there. And Logan wrote a piece a couple months ago that says, you know, why we can’t build our way out of this inventory shortage. It’s just not possible. So, really, the existing homes are where we have to look at, you know, but we’re seeing housing tenure creep up past 10 years. People are staying in their house for more than 10 years, which really, you know, doesn’t give anybody incentive to sell because then where are they gonna buy? And that’s something that Mark brings up in his article. Yesterday we published a great article by Frank Nothaft from CoreLogic. Tell us a little bit about that one.

Brena Nath: That’s another piece. The headline for anyone who wants to look at it on the website is “5 predictions for the 2022 housing market.” I love a quick hit list that says, “Here are the high-level things when it comes to mortgage rates, home sales, home price growth that you need to look at.” One of the areas there that he talks about is higher mortgage rates and home prices are expected to moderate buyer demand as the erosion of affordability takes a toll. In addition, more for sale inventory will likely be available in the market.

So, this piece is unique to me or I think stands out from the other forecast pieces because there is a little bit more hope in this piece, I would say, from my perspective of looking at this perspective of, okay, there might be a little bit more and I think you need to take everything with not this extreme, like, everyone who says there’s gonna be a giant foreclosure crisis or the giant onslaught of inventory. There is some, you know, positive in these forecasts. It’s not continuous of the same or continually saying the same stats about no more inventory, rates are gonna go forever, or home prices are gonna keep slowing.

And so to dig into that, it’s kind of the idea that, hey, home prices are still gonna rise, but they’re not gonna rise as fast. It’s notes like that that you can find within his article when it comes to home prices dropping. He has a chart inside his article that says home price growth is forecast as just slow. So, in 2021, the home price growth was at a percent change annual rate of 15%. What they forecast for 2022 is 8%. And they also added in 2023, and they forecast a 4% home price growth. And to give a little bit of a look back from 2010 to 2020, so the last decade, it was about a 5% home price growth. So, looking at, hey, home prices will still rise, but probably not as fast.

Hopefully, there’s gonna be a couple of reasons why there’s gonna be more inventory. He breaks it down into three different parts, one is new single-family construction. One is pent-up sellers who are delayed selling during the endemic and maybe they’re finally ready to move this spring because as we’ve touched on before, every seller is a buyer as well. And the third thing he highlights is borrowers who had exited from forbearance but continue to struggle remain current and choose to sell as a result. So, those three areas is what he predicts will help free up more inventory. But just because there is more inventory, it doesn’t mean there’s not gonna be high demand, it doesn’t mean home prices aren’t gonna grow.

Sarah Wheeler: It reminds me, Brena, when you and I were first at HousingWire. You were at HousingWire before me in 2013, right? But one of the stories that we would write on a regular basis is, is it a better time to rent or buy? And we wrote that because people wanted to know, I mean, especially, you know, coming out of the financial crisis, there was a lot of PTSD about buying homes. You know, people were not in the best financial shape and all that.

And even now when you see the rise in home prices and you see some of these things going on, but the problem is there’s been just as much rise in rental prices. So, you’re seeing rent inflation. And so it always reminds me of like, you know, the fact that there are these headwinds on the housing industry, the fact that it’s not easy to find a house, it doesn’t change the fact that people want and need to buy a house. And there’s not a great alternative out there. If you’re renting right now you’re experiencing, you know, the same sort of inflation, but you’re not, you know, able to invest any of that. So, I do think it’s really interesting when I think back to those stories that we used to cover all the time.

Brena Nath: I completely agree. We’ve been doing this forecast series for two years now, though, we’ve always been publishing forecasts at the turn of the year, but I would say a forecast series around it we’ve been doing for two years. And I distinctly remember, I think it was last year, maybe it was the year before we launched this series, there’s one article that came out and I was talking to Rocket about their thoughts when it came to buying homes. And one piece of advice that really stuck with me at that time, to touch on what you just said, is no matter what, people are still gonna need to buy homes.

And so you have this generation, kind of, millennials who more than ever have really tried to game the market. Looking at the economic factors, they’re a lot more hyper-focused on mortgage rates. They’re more hyper-focused on the rising home prices, but it’s kind of a shift [inaudible 00:11:40] idea and his wording was, “You shouldn’t let the tail wag the dog,” meaning that people are looking at all of these factors and citing, “I need to get in there now. It’s the time that I should buy,” versus, do you actually need to buy a home? Are you about to have kids and you need more room? Do you need to move across the country and be close to your parents? There’s still these extra factors outside of the economy, and the rates and the data that are causing people to move. And that really is still a big topic when it comes to what is fueling demand. It’s just the need to buy a home.

Sarah Wheeler: This is something that our lead analyst, Logan Mohtashami, goes over and ever because from his perspective and his model, he’s looking at the demographics that drive this. So, one of his arguments against the fact that we’re up against any sort of housing crash is that you have this wave of millennial buyers hitting that peak home-buying age. And if you need a house, you need a house. And then, you know, really the COVID pandemic, which someone could reasonably think that’s going to affect this, has actually just made it worse because people want to have more space. They need more space. They’re working at home, their kids are at home. So, I do think it’s really interesting. I don’t think this is gonna slow down anytime soon. Speaking of Logan, you just published a video where you talked to him about three priorities in the housing market. Talk to us about that.

Brena Nath: This video, one, stands out because it’s a video. I’ll always enjoy sitting down for a video interview with our guest, but also stands out not just because it’s a video because it’s a really good quick hit on if you wanna know. I don’t have a lot of time. Let me figure out what’s going on. I will insert right here podcast is another great way to figure out a quick hit on what’s going on in the market. Listen to it as you drive.

Logan publishes regular columns for us. The video really takes a lot of what he’s saying and puts it into three quick hits when it comes to rates, what he’s seeing for housing prices and what he’s seeing for home prices was the third one. So, it’s three different parts of the 2022 housing market, and he dives into… For example, I asked him where are home prices going in 2022, and he goes on to say, unfortunately, his biggest fear in 2021 was that home prices would accelerate and we’re still at a level where total inventory is below 1.5 million to 2 million.

For him, as long as it’s below that, it’s not a good thing. So, home price growth can facilitate higher prices, which he doesn’t want the repeat of 2021. So, what he goes on to say is inventory is gonna fade, you know, like it does in the fall and the winter. However, if rates do pick up a bit or if housing slows, it is positive. We want more inventory. So, recapping his words there, which is also a similar theme that we saw in Mark Fleming’s piece, which is inventory, clearly a subject that a lot of people are interested in.

Sarah Wheeler: Interesting you say that. His next piece for us which I think we’ll be publishing tomorrow is focused specifically on inventory and just what he sees for that. He is one of the few people out there who doesn’t see rates rising as fast as other people. He thinks that that will be slower, which in some ways is a bad thing because it keeps those housing prices really high. When you have higher rates, you’re gonna have less people who are gonna be able to afford things. It’s gonna slow down demand just a little bit. But he doesn’t see much of that coming. So, it’ll be interesting to see that. So, this series you mentioned it before, who else is next? Who are we going to see articles from next on this topic?

Brena Nath: Yes. Coming in next, we have NAR submitting a piece from Jessica Lautz who gives data and research for NAR. Her piece dives into what’s driving demand. We have another piece going live this week from Marina Walsh over at the MBA. Her’s talks about forbearance and servicing and what the impact of that in 2022 is, which I did wanna dive a little bit deeper onto that note.

Outside of home prices and rates, another big area is they ended the foreclosure moratorium and the Cares Act, which Frank Nothaft does touch on in his piece and goes on to say the forbearance program will likely result in distressed sales, foreclosures, and short sales, but this increase will be small given the record amount of home equity that homeowners have gained through their home price growth, which is why refinance demand while gonna be a lot smaller, they foresee still seeing that as an option for some people as they either refi out of FHA loans or go into more conventional loans. That is an area that will peak when it comes to refi. So, a lot of that refi demand will turn into cash out. Just an extra note about these forecast pieces that our economists are diving into.

So, going back to the list of people, you can also expect one on their appraisal market coming out along with one from Jeff Tucker who is over at Zillow and he’ll be talking about his thoughts for the 2022 housing market as well.

Sarah Wheeler: I really love how you focused everybody on kind of different themes, so it’s not the same. It’s not like, “Oh, okay. Here’s all these economists talking about the same thing.” They really are looking at different parts of the housing economy and the effects. So, very excited. And all of this is culminating in a virtual event that we are hosting on February 8th. Tell us about that.

Brena Nath: Our own, Sarah Wheeler, who is on this podcast with me now is hosting the roundtable. I’ll give her that shout-out so you can tune in on February 8th for that discussion. Feel free to go to housingwire.com, you’ll see the link at the top of the page to go register. I do wanna note, it’s exclusively for HW+ members. We do have a code. And feel free to reach out to me if you want that discount code to get a reduced rate to become an HW+ member and get access to all the other benefits of the program. But the main thing being you’ll get access to the 2022 HW+ virtual forecast event that each one of these economists we’ve invited for on to the roundtable discussion to do a little bit of a deeper dive on what they’re seeing, and then end with that roundtable discussion where everyone can ask their questions. If there’s something really pressing that you wanna know about the future, you can ask it there and they’ll give you their best take on what you need to know to move forward.

Sarah Wheeler: We’ve had so much interest already. We’ve had a ton of people sign up for that. And a lot of people who’ve signed up said, “Hey, where do I send my questions?” because we’ve gathered some of the people that they really wanna hear from and they have questions. We know this is driving a lot of interest. So, that’s great. If people want to send questions and you said, you know, that they could even reach out to you for HW+ code and all that, how do they get in touch with you?

Brena Nath: I’ll receive questions in any form of communication these days. I always joke about the people who are like, “You can LinkedIn me, Slack me, Twitter message me.” But the best place, of course, is through email. So, my email is bnath@housingwire.com. Feel free to send your questions there. I’ll bring them to the roundtable discussion to our economists so that they could discuss in-depth your question and get you some answers so you can move forward.

Sarah Wheeler: I love that. And I know that you’re already getting those and so am I and all those different areas. I feel like every time I click into LinkedIn, I’m like, “Oh, here’s another one. Here’s another one.” So, very exciting. Thanks for putting this together for our readers and our listeners, our audience, however, they come to us because this has been, you know, great information that they need to know. And thanks for being on “HousingWire Daily.”

Brena Nath: It’s always a pleasure.

HousingWire Daily

Hosted by the journalists behind the headlines, HousingWire Daily examines the most compelling mortgage, real estate, and fintech articles reported from the HousingWire newsroom.

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