Housing market projections and HECM market impacts

To say the housing market was crazy in 2021 may be an understatement. Last year’s frenzied pace of home sales, refinances, and equity withdrawals had all the energy of a sugared-up 8-year-old. However, there are signs that the sugar high is fading. Planned interest rate hikes, buyer fatigue, and economic uncertainty- each is poised not to crash but rather slow the pace of home appreciation.

Crazy may be fun for the moment, and certainly, it’s an opportunity for home sellers to pocket some handsome profits, but it’s certainly not a foundation for stability or long-term growth. Thanks to an average home price increase of 18% nationally in 2021…

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46% of  HECMs endorsed in the fiscal year 2021 were refinances of an existing HECM loan. As the surge in home prices may be behind us so too will follow the pace of HECM refinances. In addition, even moderate interest rate hikes will curtail HECM borrowers who are eligible to refinance.

So is the U.S. housing market poised to crash in 2022? That outcome seems increasingly unlikely. Housing experts see more deflation, rather than a sudden bubble burst. Redfin, a national real estate brokerage, made 10 predictions for 2022. One is home price growth will slow to 3%. Another is that 30-year fixed-rate mortgage rates will slowly increase to 3.6% by the end of the year. Redfin Chief Economist Daryl Fairweather, said higher rates coupled with slow price growth, will discourage speculators and investors from entering the market. Fewer speculators mean reduced demand which would temper home values. On the other hand, Zillow is bullish predicting home prices will rise by 14% in 2022. That’s a highly ironic prediction considering that Zillow suddenly closed down their iBuying program and then moved quickly to sell-off of homes purchased just months before.

However, there’s one interesting prediction that could hold potential for HECM lenders. Redfin predicts demand for condominiums will surge. “In 2022, dense housing will make a comeback. More and more homebuyers are open to buying a condo or townhome for a fraction of the price of a single-family home.”, writes Fairweather in Redfin. Such a trend may be a good fit for older homeowners seeking to downsize.

All things considered, there are three forces that are propping up the U.S. housing market. Low interest rates, continued constraints in housing inventory, and the government’s reluctance to unwind millions of loans currently in mortgage forbearance. Any significant shift in one or more of these is certain to have a direct impact, not only on home values but HECM loan volume and the valuation of the HECM program itself.

Our best approach is to incorporate these anticipated shifts in the housing market into our sales and marketing strategy. Perhaps it’s less reliance on refinances, finding a way to tap into local condo sales with the HECM for purchase, or building a robust professional network that’s less vulnerable to the whims of the market. The question is what’s your next step.

Useful links related to this story:
Redfin: 2022 Housing Market Predictions
Fortune: No, the housing market isn’t about to crash—but Redfin does say some good news awaits buyers in 2022

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