NAR Chief Economist Predicts Continuation of Hot Real Estate Market in 2022

By MNR News posted 01-06-2022 13:52

Dr. Lawrence Yun explored impact of economic trends on Minnesota housing market during MNR webinar
The opening months of 2022 are primed to produce Minnesota’s hottest winter real estate market since 2020, according to Dr. Lawrence Yun, Chief Economist for the National Association of Realtors® (NAR). Yun, who led a webinar hosted by Minnesota Realtors® (MNR) in late November 2021, offered encouraging predictions about the state’s 2022 market, ranging from the economy and home sales to inflation and mortgage rates. 

“The housing market has certainly been a positive surprise during this difficult COVID period,” said Yun. “Lives have been impacted, our daily routines flipped upside down, and many of us have suffered from having someone who got COVID and may have passed away.” 

The small silver lining, he said, is that this difficult situation has created a remarkable real estate market. During the session, Dr. Yun outlined several key points that are contributing to robust sales in Minnesota.

Millions of jobs unfulfilled despite low unemployment rate

Minnesota’s unemployment rate, which peaked at 15% in March 2020 (and up to 30% in some areas), was down to a nearly normal 4% toward the end of 2021. However, Yun observed, the outlook changes when the number of people who actually have jobs is factored in.

Currently, the labor force is short by about four million jobs compared to pre-pandemic rates. The change reflects that fact that many people in their 50’s and 60’s took early retirement when the pandemic started. So, they are not counted as “unemployed,” and are not in the job market. Sadly, the many excess deaths—both from COVID and from related issues, such as drug overdose—are not counted in the unemployment stats.

These factors have put job openings at a record high, causing extreme difficulties for many businesses. “So, it’s a very strange world we live in,” said Yun. 

Home sales will continue to be robust in 2022

In April and May of 2020, when COVID-restrictions were in full-force, home sales plummeted. But after that, there was a huge surge of home-buying activity. Over the summer, those numbers dissipated slightly, but now there is another surge, which is extremely unusual for this time of year, reports Yun.

“Putting it simply, this is going to be the second-best winter homebuying season in 15 years,” he says. And the best? That was last winter. 

Dr. Yun predicts that sales in 2021 will shape up to be even better than 2020, once December’s statistics are fully tallied. The annual sales numbers for 2021 look to be the best since 2006, right before the infamous housing bubble occurred. He expects a slight reduction in home sales in 2022, but nothing alarming. 

For now, inventory remains low now, but Yun predicts it will improve as 2022 gets underway. “I am crossing my fingers and forecasting that inventory in 2022 will be better. Not that we will return to normal, but at least the worst in low inventory rates is coming to an end.” 

Real estate still a good investment despite inflation

With inflation rates rising rapidly, consumers may be asking themselves: Is real estate still a sound investment? Dr. Yun says yes, it is still a solid place for Americans to put their dollars. The real estate market tends to align with inflation rates—or even better. Even as inflation rises, existing mortgage payments will stay the same throughout the course of a loan. Conversely, rents rise with inflation. This is good for investors but may also motivate renters to own their home. 

Mortgage rates will rise as federally backed loans decline

It’s clear that the Federal Reserve will increase interest rates because of inflation. Therefore, the Fed will be more reticent to secure as many loans from Fannie Mae and Freddie Mac, the federally backed home mortgage companies created by the U.S. Congress.

“Fannie and Freddie will need to look for other buyers besides the Federal Reserve,” said Yun. He added that the only way to attract other types of mortgage buyers is to offer them a better interest rate, which will in turn cause more rate increases for buyers. Dr. Yun predicts that rates will reach 3.7% by the end of 2022.

For more details about Dr. Yun’s forecasts for 2022, watch the full webinar on MNR’s YouTube channel. Dr. Yun explores additional topics, such as agent statistics, appraisals, buyer demographics, and home values.