The Bibel Team: 2022 Projections

Hey everyone. Eric Bibel with The Bibel Team at NEO Home Loans. Today I want to talk to you about projections into 2022. If you like what you see here, please like, subscribe, comment, follow. We cannot continue to put out this content without your feedback.

[Timestamp: 00:23]:

I wanted to talk to you today about where the market is headed into 2022, and really cover a gamut of things from housing to rates, economic forecasts, recession talk, and all of those components. There’s been a ton of chatter, both internal, from our staff, but more importantly from our clients, around what’s happening. The media has really taken a pretty significant hand in, kind of doom and gloom, what to expect, especially on the fringe now of the pandemic, hopefully in our rear of your mirrors as we enter into the new year. So a couple of things. First and foremost, housing. 2021 was one of the strongest appreciations on the hinge, or on the backstop of 2020, where again, appreciation numbers were astronomical. Couldn’t expect better numbers. Well, 2021 blew that out of the water. In San Diego county alone, we saw a 28% average appreciation gain year over year, which is astronomical and nabbed us to second spot in the country behind Phoenix.

[Timestamp: 01:38]:

So with that, a couple of things. We get questions around, are we entering bubble territory? I know we’ve talked about that in content past and I want to quickly address it here. The answer to that question is no. The components around that are, demand is still incredibly high. Affordability is still in line with demand, meaning the people that are still seeking new housing are very, very strong. So, the number of people that want to purchase a home is high. But more importantly, where appreciation has driven up significantly, it is still in line with affordability, meaning the people that are seeking new housing have the ability to purchase that new house. So, why I share that with you, spring-boarding into 2022, that is expected to continue. Demand is still incredibly, incredibly high. And really that’s attributed to the first time home buyer pool that are entering the market.

[Timestamp: 02:38]:

We’ve talked about this in videos past, but I think it’s worthy of mentioning here. If we look back 33 years from today, so we’re currently sitting in 2021 the last month of the year, and we look 33 years past, the number of new births that took place is now a steady upward trajectory. Meaning the new bodies that entered the world 33 years past and take that forward the next seven years, it exponentially grows. And why is 33 is such an important number, such an important age? Historically, on average, first time home buyer is between 33 and 35. So, rewind 33 years ago, a number of births that occurred in that period of time exponentially grows. That is the foundation for new household formations. So, fast forwarding now into 2022, we have new buyers entering the market at a rapid pace because of the age trajectory.

[Timestamp: 03:44]:

With that demand on one hand, we still have an incredibly depressed supply market. Meaning the number of homes that are available for sale are just nonexistent. And again, we’ve talked about this in videos past and content past. That has not yet been addressed. A recent study that I looked at, in order to satisfy national demand in today’s current context, and I’m talking from December, 2021. In order to satisfy current demand right this very minute, we would need to see a minimum of 4 million new construction units hit market today. If you look around here, San Diego specifically, and really our neighbors to the north in orange county, even Temecula, our partners out in Arizona, I mean, you name it. Builders are not building at the level. We’re not gonna see 4 million new homes pop up today. So, with demand incredibly high, and supply incredibly low, it’s gonna be much of years past.

[Timestamp: 04:43]:

It’s forecasted that 2022 is expected to be one of the strongest purchase markets we’ve seen coupled for that. Additionally on that, interest rates. Where right now we’re starting to see some kind of volatility within the interest rates space, and I’ll preface with, interest rates are still phenomenal. Low threes, and some instances high twos which is in line with near historic lows. So, really a phenomenal opportunity to borrow at an incredibly low rate. I mean, essentially you’re borrowing below the rate of inflation in most instances. So here, demand incredibly high, supply incredibly low, interest rates still incredibly favorable, spring-boarding into the new year. It’s really setting the stage for it to be very similar to what we saw in the summer months of 2021, where purchase demand was so incredibly high. It was not uncommon to see multiple offers, you know, to the tune of 10, 15, 20 offers on particular homes.

[Timestamp: 05:47]:

So, much of the same expected into 2022. Good news is, we’ve got a lot of things in store to ensure that if you do make the opportunity to work with the Bible team, we can help in getting your offer accepted. So more to come on that. But another thing that I wanted to talk to you about is, interest rates. Spoke on it briefly here in the previous segment Interest rates right now, again, are very favorable. Below threes, again, near historic lows. We do expect to see some volatility, especially on kind of the talks of inflation being kind of center stage right now within the media. And inflation right now is really just to kind of distill it down to its raw context, inflation is representative of the change in your dollar value over time. As the, the value of the dollar decreases, the cost of the good remains the same. So you need more of your money to purchase the same goods. So with that, we’re seeing a significant ramp up in inflation.

[Timestamp: 06:53]:

Why I share about inflation, and why it’s relative to interest rates is, inflation is the arch nemesis of interest rates. With inflation being a deterrent to dollar value today if you look at long term debt, mortgage, inflation combats those future returns. The ability to combat inflation, in order to do so, the fed, our controller of our national monetary policy, in order to combat that we need to see interest rates raised. Now a common misconception is the fed controls mortgage rates. No. However, there is some interconnectivity. So Jerome Powell chair for the federal reserve spoke on the hinge of their two day meeting in December, 2021 Inflation is no longer transitory, meaning it is not a response to the pandemic.

[Timestamp: 07:50]:

This is something that we’re actually experiencing, and it doesn’t look as if it’s going to go away anytime soon. So action needs to be taken. What the fed has decided to do is a couple things. One, they’re going to stop purchasing mortgage backed securities at the level they were purchasing during the pandemic. So that’s one angle. Two, not printing as much money, a new money supply entry in the market, devaluing the currency the United States dollar. But more importantly, they talked about raising the benchmark rate. So fed fund rate, they’re talking about three interest rate hikes into 2022 and potentially another three into 2023. So, why that’s meaningful, why I share that with you, and how that does not connect directly to mortgage. What the fed controls is the cost associated to short term money, so effectively, what banks charge one another overnight.

[Timestamp: 08:42]:

It impacts home equity lines of credit, credit cards, student loans, car loans, essentially anything that is really consumer debt driven. Revolving debt. So again, misconception. Fed changes interest rates, raises them, lowers them, mortgage rates immediately change thereafter. Again, our answer to that is no. However, there is correlation. So if and when we do see the fed make their first adjustment, it is indicative of mortgage rates changing in the near future. Typical runoff is, fed makes a decision. Let’s call it today. Historically we’ve seen anywhere between 60 and 90 days, mortgage interest rates tail up with them. So again, why I share that with you is, expectations into 2022 is purchase demand, incredibly high. We do expect volatility within interest rates, and we do expect to see interest rates ultimately move up. Now in that same space, we are still on the back end of a pandemic, which, in today’s current context with the increase in the Omicron variant, California is imposing mask mandates, our counterparts in New York have done the same. There’s talks of Washington DC.

[Timestamp: 10:02]:

We’re looking at potentially going back to some of the pandemic era restrictions, which does have impact to our economic growth. So again, I wanna make sure that not trailing people off. And why I’m sharing all this with you is that where, yes, there is an expectation to see interest rates rise, I do firmly believe that with the pandemic still here, the fed doing everything in their power to adjust and curtail monetary policy to keep the economy moving forward, there becomes a tipping point. And with that, we do forecast, myself and a number of very formidable minds within the economic and real estate community, forecast that we do expect to see a recession potentially towards the tail end of 2022 and early 2023. I share all this with you, not to instill fear, but to allow you to prepare mentally for what potentially is to come. And in those times, when we look at recessionary tickers, mortgage interest rates benefit significantly.

[Timestamp: 11:14]:

So, very strong expectation in the housing market. Historically when a recession is upon us, housing prevails, as we’ve seen in recessions past with one exception; that of 2008, when the recession was brought on due to the housing scenario. So again, forecast, very strong housing expectations, strong demand, interest rates will see volatility into the first or second quarter of 2022, we’ll potentially see interest rates rise above 3.5%. But as we enter into the summer months, and again, the pandemic being where it is, I do firmly expect to see interest rates, tail drop in response to the possible onset of a recession. And again, I don’t want to instill doom and gloom. It is still a phenomenal time to act. It is still a phenomenal time to purchase. With the forecast of appreciation, the investment in yourself today into a home forecast over the next five years, it’s a potential 40% increase in value. You tell me an investment that spends 40% inside a five year return. There are none. So, very, very strong play, safe play.

[Timestamp: 12:29]:

And with that, we would love the opportunity to dig deeper into this with you. If your goals involve purchasing real estate into the new year, give us a call today. We would love the opportunity to partner with you and help you achieve your goals in 2022. Thank you, and have a wonderful day.

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