Are we headed for a housing downturn in 2022?
Updated: Jan 19, 2022
I have been hearing concerns about a housing downturn given the rising home values happening here and across the nation. While I do not feel this market will be sustainable, I also do not see it ending soon if the current conditions persist. My guess is that 2022 turns out to be just as good, if not better, for housing appreciation as 2021 was.
The reason I don’t see this ending soon is because inventory is so incredibly low and there is a lot of room for it to grow and not have a material impact on home values. To put that in perspective, back in December 2008 there were 80,156 homes for sale in the Chicagoland area. Fast forward to December 2021 and there were only 13,708 homes for sale. As you can see from the graph, the number of homes for sale has been on a continuous downward trend since the housing bust. The December 2021 homes for sale numbers are down 36% from December 2020.
Here are some year over year Homes for Sale comparisons:
Schaumburg: - 49% YOY (Year Over Year)
Barrington: - 60% YOY
Crystal Lake: - 33% YOY
Naperville: - 59% YOY
In my opinion, the main driver of this craziness is the low interest rates. If interest rates were to rise to the historical average of 6%, that would instantly pull back demand and inventory would rise. That is easier said than done though. If interest rates were to go back to that level in a short period of time we would likely go into a deep recession as the cost to borrow would be so much higher than what it currently is and everyone that has a variable interest rate would have much more of their income go towards interest alone. Let’s not get into the $29.6 trillion dollar, and counting, US debt that the government would have to pay extra interest on.
The Federal Reserve is expected to raise interest rates 3 times this year (quarter point each time) which will help but not nearly enough in my opinion. I do feel they will have to raise interest rates faster than they expect this year due to the inflationary pressures that are being seen all over, including housing. I’m looking forward to reviewing this post in January 2023 to see how it all turns out. Hang tight, I think we are in for a wild ride this year!