Previewing 2022: Making predictions in an unpredictable time
It’s not easy being in the prediction business these days, especially when it comes to the economy. For example, many economists who pay a lot of attention to mortgage rates were predicting that rates would reach somewhere near 3.5% by the end of 2021. As of the second week of December, mortgage rates were hovering around 3.1%.
A big part of what is making predictions so hard is the inconsistent recovery from the pandemic. Last year, when rates started to tick up in the summer, the Delta variant emerged, and rates dropped. Then as they were heading up again in the fall, Omicron put a stop to that. The course of the pandemic is just too unpredictable, and it effects so much about our economy and how we live our lives. Even with all of that inherent uncertainty, we feel confident enough to make some predictions about where the housing might go in 2022.
Rates may stay low
Ever since the news of COVID-19 started to come out in the winter of 2020, mortgage rates have responded—moving up and down based on the latest news. And now that we have a vaccine, some have seen that as a reason that rates may start moving higher. But Jeremy Collett, Executive Director of Capital Markets at Guaranteed Rate, doesn’t foresee that much movement.
“While interest rates may move slightly higher, I do believe they will remain at historically low levels, maintaining an advantageous environment for homebuyers,” Collett says. He points to indications from the Federal Reserve that they will raise the Federal Funds rate, which affects how lenders set their mortgage rates.
Inventory will remain an issue
Housing inventory has been a problem for years. In 2015, there were consistently more than one million homes for sale, on average. This past year, the average number of homes for sale dropped to less than 350,000. It’s a simple issue of supply and demand, and the low supply is driving demand—and home values—up. The low rates of the last year have only made it worse, frustrating many would-be homebuyers. All of which means the inventory environment should remain tight in 2022.
Construction will pick up
One way to address the inventory crisis is through increased new home construction. And the issues of the last year should inspire new builders to speed up the construction of new homes.
“I’m seeing a lot of cautious optimism,” says Jim Colella, VP National Building Program Manager at Guaranteed Rate Companies. “Builders are going to need at least the next 18 months to two years to catch up to demand. What I’m seeing is that they’re being careful not to sell ahead of their construction abilities or where pricing may be. That means that they don’t want to sell more homes than they can finish in the next six months or so.”
Colella sees inflation as a major headwind for construction companies as they plan to build more homes. “They’re all keeping their eyes on inflation, however, and are concerned that rising inflation could shut things down for them again. That’s where the cautious part comes in.”
Technology will speed up
While there are many ways that a buyer can make themselves more competitive in a hot housing market, Paul Anastos, Chief Innovation Officer at Guaranteed Rate, predicts that enhanced technology will help buyers compete next year.
“When there’s not enough inventory, what you find is all-cash buyers have an advantage. In a competitive environment, customers need to be positioned almost as an all-cash buyer. And that’s where a really fast approval can come in.
“Say you get an appraisal waiver and we approve your loan in a day, that means you’re performing exactly the same as a cash buyer. You’re ready to go. You’ll need tools like that to be competitive when you’re making offers.”
Innovations will continue to make homebuying more efficient
As we’ve seen over the last few years, the entire homebuying experience is becoming more and more digital. Platforms like Guaranteed Rate’s Digital Mortgage are using technology like artificial intelligence to make the process faster, easier and more efficient.
“We’re offering more and more automation, speed and efficiency,” says Anastos. “We’re getting close to where we can offer instant approvals and nearly no-touch loans…. Once a borrower provides their information and link their assets, we can potentially get them approved in seconds.”
AI is also helping keep the homebuying process moving. In years past, a person would need to review each document and piece of information submitted as part of the homebuying process. This could take a long time, especially during busy parts of the year. Now, AI can handle many of those tasks and deliver them with greater accuracy.
As Anastos say, “The faster we can provide to a customer what we’re looking for, the faster they can provide it to us—and the faster we can clear the loan. AI is dramatically accelerating that process, taking the onus off the POD team that supports the loan officer.”
Expanding homeownership opportunities
Jeremy Collett also sees the Biden administration and other authorities in Washington D.C. continuing their efforts to expand homeownership opportunities in the new year. “I expect the Government Sponsored Enterprises—Fannie Mae and Freddie Mac—to focus heavily on affordable housing. In addition, we’ll likely see a slew of new products and energy poured into expanding homeownership opportunities to communities traditionally underserved by the market.”
It’s possible that these efforts could help curb the rising home values that we’re seeing in every market. But with all things that come out of D.C., there’s a real question if and when effective changes will actually get approved and implemented.
While the prediction business has been difficult these last few years, homeownership is still a great business to be in. And even though there have been many concerns about our economy as it recovers from the pandemic, that’s one prediction that we’re not afraid to make.
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