As always, time flies, and here we are in December already, wrapping up another year! 2022 will certainly go down as one for the history books for the real estate industry. Before we dive into what happened in 2022, it is important to first understand that the 2021 real estate market was also marked in the history books for being a record-breaking year on the peak end of the spectrum. The benchmark for 2022 was set by historically high results in 2021 for home pricing/values, home buyer demand, and home sales, which were mainly fueled by historical lows for interest rates and homes available for sale.
The real estate market changed in 2022.
That change was largely caused by the rising mortgage interest rates that started early in the year and grew persistent and heavy throughout the year. Interest rates quickly rose throughout the year, from 4% to 5%, to 6%, and up to 7%+ at one time. This was a massive and historical movement for the financial markets, and an intentional move by the “powers at be” to attempt to cure the spreading and intensely growing inflation data that has rocked markets globally. Looking back now with perspective, it is easy to understand that home buyer demand would be affected significantly when we are looking at the cost of borrowing almost doubling throughout one year. Interest rates always fluctuate, but the speed at which these rates grew was certainly a historical element in play for 2022 and certainly had its effect.
As mentioned, mortgage interest rates affect the overall affordability of purchasing a home. With the higher rates in play, buyers were quick to do the math and realize that the monthly cost of owning a home had now significantly increased by hundreds of dollars per month, and in some markets or price points, the increase was thousands. This led to a natural reaction of the buyer pool to pump the brakes off of what was an extreme, historical buying frenzy that had occurred during the last few years prior. Again, with perspective this all makes sense!
From here, what is pretty easy to correlate is that with less demand there will be fewer sales. Nationally, 2022 is set to become a top three year, and potentially could take the top spot, for the biggest decline in the number of homes sold year over year. We are talking about a ballpark of around a couple of million fewer homes will sell this year compared to last year. Again, keep in mind this is coming off of what was a near record-breaking year in 2021 though!
What is interesting with all of these stats is that home pricing hasn’t been slaughtered and lost value like you would think it might have after digesting all of this information. Currently for 2022, for the most part, there is still growth in home values, just very low single-digit growth in comparison to the double-digit price appreciation that we have grown used to in the last few years. Many believe that we are not living in a bubble that is about to burst where we see dramatic losses in home values, but rather that the growth we have seen in the real estate market was just simply not sustainable over the long term. Sure, the upcoming progression could be that the coming year or next couple of years could lead to slight declines in home prices but overall so far it doesn’t seem like we are headed into a period similar to the great recession of 2007 era where home values were chopped in half in many markets. We’ll save some predictions for 2023 and beyond for another blog though!
Relative to the Rochester, NY real estate market, we experienced all of the above too! However, the national year in review would read much differently than one specific to the local Rochester market. There are a lot more extreme scenarios, data, and stories tied to what has been described above with many other bigger, national markets. Here in Rochester, we experienced a less extreme version of all of this. Here are stats to prove this, with data pulled from the 93 US metro areas with a population of 750k+, Rochester, NY made the following headline rankings:
- Top 5 market for the least amount of pending home sales decline year over year
- Top 5 market for the least amount of new listing inventory decline year over year
- #1 market for the % of homes selling above their list price
- #1 market for homes selling the quickest/shortest amount of days on the market
To recap, a lot has changed in the real estate market in 2022. The best way to think about this, in summary, is that the run of consecutive years of massive growth and extreme conditions in the real estate market was thought to be unsustainable and had to stop at some point. 2022 was the year for that to happen! It’s not all doom and gloom though. The market conditions of the past few years would largely be described as extreme and unstable, and hopefully, 2022 proved to be the turning point to upcoming years of stability and opportunity for all in real estate!
We hope that 2022 was a great year for you and that 2023 is even better! Happy Holidays!!!
