Victor's Look into 2021 and Predictions for 2022

As we approach the end of a very challenging year in Real Estate and Mortgages, I thought I would lend a re-cap and my forecast for 2022.

Home inventories remain at an all-time low while interest rates have crept up a bit, yet at 50-year lows. Many home buyers threw in the towel this year as the multiple offer environment shows no sign of letting up for 2022.

There are 10 million job openings in the country, and we can’t fill the positions. I went to my local Kroger this weekend. The deli does not open until noon now on the weekends and will be closed Monday, Tuesday, and Wednesday of the week for the foreseeable future. “We can’t find the help,” they say. We went to our local Olive Garden, about 15 customers in the restaurant, but had to wait almost 45 minutes for a table. Again, a lack of staff. Is this the new normal?

I remember a couple of years back when I went to McDonald's. A #3 was about $5.00. Now almost $8.00. We went to Gardner White recently to get a kitchen set. 4-6 months waiting period. I called a contractor as we need a new roof. I can’t even get a contractor to the home to get me a quote for 8 weeks.
So where will this take us? As we investigate 2022, I personally do not see this easing up or resolving itself to a so-called normal level from what I consider to even be normal anymore.

From a financial perspective, what do we do, to yet strive for the retirement we all have on the radar. From my chair, if you are going to buy a home do not give up. If you have any debts lurking from the last couple of years, use the abundance of equity built up and hit the reset button. Let me explain.

As home inventories are very low, this problem will get worse or at least stay the same for the next few years. Household growth still outweighs the number of new homes being built today. We are millions of homes short across the country. The average first-time homebuyer is 33 years old. We have 5.2 million of these homebuyers hitting the market each year for the next 5 years. We only build about 1.2 million homes a year. So, this will pressure the inventory.

As investors are not making much money in the bond market, many baby boomers are taking their cash and buying a second vacation or investment homes as interest rates are very attractive. This will also keep pressure on the inventory issue. Builders cannot get the help to keep up with demand. Contractors are demanding higher pay and they are getting it. Driving home prices up and extending the build timing. Custom homes used to be on a 6–7-month timeline. I have seen it now at 10-12 months. Also, there is not enough bank financing for builder spec homes, thus putting more pressure on the inventory problem.

All this pressure on the home inventory and the new building of homes drives prices up. Simple supply and demand. Along with prices up goods continuing to rise this will add to inflationary jitters. What happens when inflations join the party? Interest rates rise to slow down inflation.

This brings me to my second point. Let’s say you had $25k in debt and you rented for the past 5 years. 5 years later you have nothing to show yet still have $25k in debt. Now in the same scenario, you bought a 300k home 5 years ago. That 300k home at a conservative 5% appreciation (Nationally over 10%) that $300k home would now be valued at about $382k. So, if you were to refinance even to a higher interest rate than you are currently at, this may make perfect sense to wipe out that debt. Who is paying the debt? You or time? Yes, the time has paid that debt for you. If you rent you have nothing. You bought so the appreciation or time has paid that for you. that $400 or $450 a month you are paying for that 25k debt can now cost about $112 a month. Yet freeing up $287 a month to $337 a month in cash outflow.

So, as we investigate 2022, I would like you to look at your current debts, your outlook on buying a home, and just consider a couple of the thoughts I brought up.

If you are thinking of buying a home or considering paying off some debt to start the new year in a better financial position, please let me know. We can sit down and look at what is most important to you and your objectives and see if a financial move is in order.

Please see the charts below. One a 50-year look at interest rates and household and annual completions of new home builds. Pretty interesting. Thanks again and look forward to hearing from you.