Page 64 - Westchester 2022 Relocation & Moving Guide

REAL ESTATE
Trends For The 2022 Housing Market
Joe Rand
Chief Creative Officer, Howard Hanna | Rand Realty
T he housing market sizzled throughout 2021, with both sales volumes and prices reaching historic highs for the year. We all heard the stories: buyers purchasing homes sight unseen, investors scooping up any inventory they could, and homes
selling in days after frantic bidding wars.
Why was the market so white-hot?
• Pent-up demand from 2020, when the pandemic and the lockdown suppressed sales for most of the spring market.
• A significant surge of upper-end buyer demand driven by emigrants moving from densely populated areas like New York City.
• Historically low inventory levels that forced many buyers to chase the same homes.
Most importantly, historically low, sub- 3.0% interest rates throughout most of 2021 expanded buyer price ranges, empowering buyers to meet the rising prices commanded by sellers. With already low rates falling throughout the year, those buyers could meet those higher prices without raising their monthly payments.
Here’s an example:
Let’s assume a couple is purchasing a $400,000 home, putting 20% down ($80,000) and financing the rest in a $320,000, 30-year, fixed-rate loan. At a 4% interest rate, their monthly payment would be $1,528.
But what if we have a market like 2021, where prices go up by 15% and rates fall to 3%? In that case, the home will now be $460,000, and after a 20% down payment ($92,000), the loan amount will be $368,000. That’s a big increase in the loan amount, right? Except that at 3%, the payment is now $1,552, only about $25 more per month.
Essentially, when interest rates fall, they allow buyers to pay more for a home without significantly increasing their monthly payment. They’ll need a bigger down payment, of course, but those low rates lock in that low monthly payment for as much as 30 years of home ownership.
In other words, even with the market soaring throughout 2021, with prices rising 15% to 20% in some of the regional markets, homes were not significantly more expensive for the average homebuyer in terms of the monthly payment they had to make.
So what can we expect in 2022? If interest rates stay near these lows, and the economy continues to grow, we will probably see prices continue to increase throughout
the year. But, again, that doesn’t mean that homes will become unaffordable.
Indeed, the long-term trend in interest rates actually means the monthly payment required to buy an average-priced home throughout the region is as low as it’s been in a generation — so long as you control for inflation.
For example, see the attached graph, which shows the monthly payment required to buy a home in each county in the region, using the average price in that county for every year in which we have data, and the average interest rate for that year. We then calculate the monthly payment that would have been required to buy a home that year, and control for inflation by expressing that payment in today’s dollars.
You can see the results. Even with prices going up, the decline in interest rates has kept those monthly payments as low as at any time in the past 40 years or so.
And that’s the story for 2022. So long as interest rates stay below 4%, we expect that prices will continue to increase throughout the year, while still keeping homes affordable from a historical perspective.
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LIVING IN WESTCHESTER AND THE HUDSON VALLEY | RELOCATION & MOVING GUIDE
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