The Power is Now

Home Front by Peter Crowley: What’s in store this year in residential real estate? – Sarasota Herald-Tribune

Peter Crowley is the president of Re/Max Alliance Group.

With the new year upon us, the question I often get is “Will this hot real estate market continue in 2022?” As I have mentioned in earlier articles, I am no longer confident in predicting much past the end of the month with the constant state of flux our world seems to be in these days. Everyone seems eager to call an end to the wild ride that our local (and in most parts, national) real estate market has experienced. As you will see below, I think most of the same economic factors driving our real estate market will continue for the foreseeable future.

The main driver of our residential real estate market has been a combination of surging demand from buyers and a dwindling supply of available homes for sale. This simple supply and demand imbalance has led to double digit price increases throughout our local market and in fact, most of the nation. In order for a significant change in the real estate market, there needs to be a substantial change in either the demand for homes or significant increase in the supply of available homes for sale.

On the supply side of the equation, there seems to be little hope for any meaningful increase in the number of available homes for sale. Whether it is the resale market or the new homes market, it doesn’t appear that anything will move the needle for an improved supply of homes. The same labor constraints and supply chain disruptions that have contributed to the challenge for builders to deliver on time and on budget seem to remain a factor for the foreseeable future. There was some indication that the removal of the COVID-related foreclosure moratorium would lead to a surge of resale homes. While the number of foreclosures has certainly increased, it is nowhere close to the level that would be needed to balance supply with demand.

Turning to the demand side of the equation, the crystal ball gets a bit murkier. With double digit price increases coupled with unprecedented inflation in almost every aspect of the economy, eroding affordability has to have an impact on the demand for homes to some degree. In a “normal” market this would absolutely be the case, but our local market seems to defy these odds driven by an insatiable demand for our beautiful area coupled with scores of buyers fleeing more restrictive COVID-related states for the more relaxed Florida communities.

Another important factor that typically would dampen buyer demand is a rise in interest rates. With the recent announcement from the Federal Reserve committing to multiple increases of the federal funds rate, the common corollary to this will be an inevitable increase in interest rates on all loans, including home loans. An increase in the interest rate coupled with price increases will price many buyers out of the market. So there it is … the answer we needed to balance the housing market! Not so fast … our local real estate market comprises almost 50% cash buyers – much higher than most markets around the country. This large amount of cash buyers will soften any impact of a rising interest rate environment – at least in the near term. There is some speculation that a rising interest rate environment (or even the threat of one) will spur reluctant sellers to finally put their home on the market to avoid further erosion in their purchasing power for their replacement home. So far, this has not materialized and we are still dealing with a dearth of available homes on the market.

Our local housing market is a huge driver of overall economic activity throughout our area. While some of the headwinds (i.e. affordability and interest rates) may cool the market a bit (high single digit appreciation vs double digit appreciation), the fundamentals of the housing market remain strong and appear to be on solid footing for the months ahead. Larger macroeconomic policies (inflation, money supply, currency valuation) will undoubtedly play a part in the housing market in the years to come, but for now let’s savor the prospect of a healthy 2022!

Peter Crowley is the president of Re/Max Alliance Group.



own shows