Looking back on 2021 and Looking forward to 2022!

2021 was another year for the books in real estate.  Today I'm going to give you a recap in my own words. I'm going to tell you about trends that I saw over the course of the last year, and then I'm going to lay out my predictions for this one.

Looking back on 2021

New construction costs continued to rise

We all hear about lumber in the news, and lumber was certainly a wildcard in 2021. To paint a picture on a small scale, I was just at Home Depot a week ago and an 8' long 2x4 was like 8 bucks. I used to work at a hardware store and can remember these costing like a dollar. Now multiply that by an entire house and think about what that has done to new home prices. Yeah.

Now think about everything else that goes into a house that is not dimensional lumber. Plywood, shingles, PVC, wire, windows, doors, steel, concrete, flooring, cabinets… the list goes on. Even though the media liked to focus on lumber, the reality of the situation is that everything has gone up… significantly.

Now, think about how those materials above become a new home. People, that's how. Labor. We are in the midst of a labor shortage. If the housing market has taught us anything about supply and demand, you can guess where labor prices are. They are up there.

Last point I'll make is land. Land and lots are very difficult to come by which also means people are paying a premium.

Point being, new construction costs have risen over the past year significantly, but the demand has remained the same or even become higher than years past.

Existing home inventory stayed low

Let's change gears now, and talk about existing homes or as I like to call it, the resale market. People that buy homes fall into one of two camps.

They are strictly buyers, meaning they are purchasing a home and they have nothing to sell. They are entering the market as a first time buyer or for some other reason.

OR

They are buyers and sellers, meaning they are buying or building a new home and selling a current home. These can be people up-sizing, downsizing, or relocating for another reason. A lot of our existing home inventory comes from these types of situations. But now, these folks can't find somewhere to go, so they are afraid to pull the trigger and sell their current home.

If I had a dollar for every time someone's told me' I would love to sell my house, but where am I gonna go??' I might be on a beach somewhere sipping cocktails.

This my friends, is why we have an inventory shortage.

Build vs. Buy

Now let's talk about building new vs. buying existing. There are pros and cons to each no doubt. You might be thinking, why in the world is demand still high to build if costs are so high? Valid question, but let's take a deep dive into that.

When you build a new house, you are possibly paying more up front typically than you would on an existing home. But, you are choosing what you want and making the home your own. You are also getting everything new. Nothing has wear and tear. Your big expensive systems like HVAC, roof, etc. are new and shouldn't need to be replaced for a very long time.

When you buy existing, you may be paying less than the cost of a build, but you also may not when you really think about it. If you're buying an existing home on the market, you likely are competing for the home, which often translates to you paying a pretty penny over list. Then from there, how much money are you going to be putting into the home to make it work for you? Are there cosmetic changes and updates that need to occur? What about those major systems we mentioned above? Will you be replacing a roof, HVAC, or windows in the near future? These are not cheap items. Don't let HGTV fool you.

In my opinion, you typically get more square footage for your money if you buy a resale, but you're either paying a premium for it if its 100% move-in ready, OR you're spending significant dollars after the fact for updates or replacements. I challenge you to look again at the overall circumstance, rather than the 'sticker' price of each. They are probably a lot more comparable than you think.

Pools remained a hot item

Pools have always been so funny. Some people love them and some people hate them. I fall into the 'love them' camp, as 2021 was the year we installed one!

In the last few years, pools have been very popular and in most cases, I would say they have been a desirable feature for buyers. I would even go on to say that they have added value (gasp), given the demand in the marketplace. People have been willing to pay more for homes with nice pools. That may change over time though, we'll see.

At the end of the day, you should not install a pool because you hope to 'add value’ to your home. Instead, add a pool because it is worth it to you from an enjoyment standpoint over the years you'll spend in the home.

Rates stayed low

Mortgage rates continued to stay low all year, which kept incentive for buyers to buy, even though we've been in a seller's market. First-time buyers have wanted to enter the market to take advantage of the low rates because it has given them more buying power. Move-up buyers have justified paying more for homes because their rate is low, and because they can sell their current home for more.

More demand than ever for larger, private yards and functional spaces.

I don't know if it's covid, or lack of lot inventory, or both… but I've seen such strong demand for larger yards over the past year or two. The acre lot really isn't being developed that often, so if people want to build they've snatched up every one off lot there is out there or purchased even larger tracts further out of town. For existing homes in the 1+ acre lot setting, you might as well get your boxing gloves on if you wanna buy one of those.

Offer Deadlines

Something else that changed quite a bit in 2021 is the way that we sell houses. As a company, we have become huge fans of the offer deadline, whether we are representing a seller or buyer. What is an offer deadline you ask?

In the past, when we would list a home, you would put it on the market and review offers as you received them. Believe it or not, it was not uncommon for homes to be on the market weeks before you were able to make a deal.

In today's market, if your home has been on the market a week you're in big trouble. We've had to adapt to current demand. So now when we list a home, it goes a little something like this.

We typically list on a Weds afternoon or Thursday morning, and allow showings Thursday through Sunday. Then, we call for any offers to be due by Monday afternoon, and to be responded to shortly thereafter. This gives any buyer who has interest in looking at the home a fair shot to get in, thoroughly think it over, and present an offer they are comfortable with.  On the flip side, it gives the seller the opportunity to review offers and select the one that works best for them. The key to this approach is that it clearly outlines what to expect to both parties. It eliminates rash decisions, and often sets the tone for a successful deal that makes it to closing.

The key to this approach is proper presentation of the home prior to listing, as well as proper pricing. There is a lot that goes into making this approach work for both parties. Here's to hoping this remains acceptable in our market place.

Looking forward to 2022

Now that we've spent some time looking in the rearview mirror at 2021, let's jump ahead to this year's thoughts and predictions.

More of the same

Overall I see this year being similar to 2021. I don't see how the inventory shortage is solved in the short term, so I think we continue to see low inventory and high demand.

The only difference could be rising rates. If rates rise enough to eliminate some buyers from the market, you could argue that would create a fraction less demand, which helps correct the supply issue.

But this doesn't correct things overnight.

I could see the rising rates affecting buying power more than eliminating people from the market completely. This could push certain buyers budgets a bit lower, to offset the rising rates. That could create even more demand in certain price points, further worsening the inventory struggles.

Another key point to remember when it comes to pricing is that all of the sales prices of 2021 lay the ground work for 2022. The comps are there to support higher numbers.

New construction costs continuing to rise

I also don't see how this issue corrects itself in the short term, if the demand stays where it is today. There are too many supply chain and labor issues for construction costs to go down.

Function > Open floor plan

While a lot of people still like open floor plans, the overall functionality of the space is taking precedence in 2022. Simply put, people want to be able to use the spaces they have effectively. Things like dedicated offices (big or small), exercise areas, and outdoor entertaining areas are high on the list for a lot of home buyers.

Icy cool grays, be gone

I've been saying for years that you're safe with warm grays and whites. It's when you go super cool and stark you move into being trendy. This started happening last year, but overall the trend has moved away from cool toned grays, and leaning more towards warmth. Warm whites, taupes, and yes in my opinion warm grays will never go out of style.

Are we gonna crash?

I get this question all the damn time. I'm no economist; these are just boots on the ground thoughts. But my answer is no. Even if you make the argument that people are 'overpaying' for homes, they still qualified for the mortgages. The crazy loans of the early 2000's aren't happening again. Even if the market has a correction and values go down, in my head that just means people stay in their home longer while they wait for values to come back. But wait… that then contributes to even lower inventory, which is where we are today driving prices up. I see things slowly 'leveling' out at some point, but not crashing. But that's just my two cents worth.

Strategies for navigating the 2022 market.

To win in 2022, you have to be proactive. So many deals happen simply because you have the right connections and channels in place to find them. If you fail to plan, you plan to fail.

Another tip I would give is don't try to time the market, time what works in your life for your family. Don’t get too hung up on interest rates ticking up. Yes interest rates are important, but we are spoiled. Historically, even if we get into the 4's and 5's these are great rates. Do be aware the rate change can affect your buying power.

Don't get hung up on 'overpaying' on a house by 5 or 10k. Yes, it's possible to overpay for a house, and you want to avoid it if possible. But I challenge you to look at it in the context of your situation. If you're moving in a year, you probably don't want to overpay on a house significantly. The loss will catch up to you, especially after you factor selling expenses. If you are planning to stay in the home for years to come, that 'overpayment' spread out over the years is pretty insignificant in the long run. Also ask yourself, what's the opportunity cost of waiting? Are you staying with your in-laws, do you want to get your kids or hell, yourself, settled? What's that worth to you? Are you renting and looking at another 6 months to a year in rent payments if you don't pull the trigger? 'Overpaying' is relative. At the end of the day, a house is worth what someone is willing to pay for it.

The end.