WRITTEN BY: MAX FITZGERALD
JANUARY 2022

With the start of another year within the context of the uncertainties of the pandemic, the macroeconomy, inflation, toggling interest rates, and the real estate market as a whole, the question is, "What can we expect in 2022?"

While none of us have a crystal ball, we can begin to forecast how the real estate market will perform in the months ahead.

In today's report, I'd like to examine the state of the real estate market, and what may be to come in 2022.

The 2022 Real Estate Forecast

Active Inventory

2022 will begin with less than 4,500 homes available for sale in Los Angeles County and 4,078 in Maricopa County, AZ. In fact, we will begin this year with the lowest amount of active inventory throughout the Country since 2004. As a whole, we are starting 2022 with 39% fewer available homes to purchase versus the start of 2021, which was the prior record low.

With very few available homes to purchase, the housing market will be extremely strong to begin this year. The theme for 2022 will be the same as 2021, "There's just not enough homes for buyers to purchase."

I expect active inventory to peak around August, followed by a steady decline heading into the fall and winter months.

Buyer Demand

With extremely low levels of available housing inventory coupled with the historically low mortgage rate environment, buyer demand will be very strong from the start of the year through the Summer Market.

With tremendous buyer competition, buyers will be willing to stretch above the asking price. Because of this, my estimation is that home value appreciation will rise about 8-10% in 2022.

Demand will be at its strongest from January through July, and then will downshift during the Autumn and Holiday Markets.

Interest Rates

I anticipate mortgage rates to continue to remain at historically low levels until the pandemic improves dramatically, most likely during the second half of the year. Yet, rates will have a hard time surpassing 3.5%.

Even with the Federal Reserve reversing their MBS (mortgage-backed securities) purchases and raising the Federal Funds Rate (short term rates), and heightened inflation, long-term mortgage rates will continue to toggle between 2.75% and 3.5%.

If mortgage rates remain at these low levels, housing will be extremely strong and the real estate market will be ultra-competitive as a whole.

Distressed Inventory

Do not expect a wave of foreclosures. The number of active forbearances will dwindle as the year progresses. As home values have surged, very few homeowners are underwater, which is one of the main reasons why the vast majority of forbearance exits are either performing on a monthly basis, or paid off their loans.

The foreclosure moratorium resulted in very few foreclosures in 2021, so expect slightly more in 2022. Nonetheless, the total numbers will be very low and undetectable in the broader housing market.

The Bottom Line: The 2022 real estate market will continue where 2021 left off - extremely strong.

2022 will be an insane seller's market (an expected market time below 40-days) from the start of the year through the Summer Market. Multiple offers and bidding wars will be the norm for homes priced below $2 million.

Once again, the market will heavily favor sellers, and buyers will have to pack their patience if they want to take advantage of record low mortgage rates.

That said, do not let the competitiveness of this real estate market keep you on the sidelines. Buyers and sellers who have participated in the 2020 and 2021 real estate markets have done tremendously well as a whole.

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