The new year is almost upon us, and while the market won't change completely come Jan. 1, there are some changing trends homebuyers and sellers will want on their radar -- at least if they want to make smart decisions. From home prices and mortgage rates to buying strategies and loan limits, much will be in flux as we head into 2022.
Are you considering buying or selling a home in the new year? Here are the trends you'll want on your radar before diving in.
1. Slowing home price growth
The latest data from the Federal Housing Finance Agency shows month-over-month dips in home price growth. And forecasts for the new year? Those show growth will continue that decline.
According to property data firm CoreLogic, price appreciation will slow to 6%. Freddie Mac predicts a slightly higher gain of 7%, though both pale in comparison to this year's numbers (between Q3 2020 and Q3 2021, prices jumped 18.5%).
2. Larger mortgage loan limits
We talked about home price growth slowing, but don't mistake that slowdown for a decline. Home prices will still be high, and in recent weeks, they've notched record numbers. As a result, we're seeing much larger mortgage limits (FHFA just announced new limits last week), as well as larger average loan balances. According to the Mortgage Bankers Association (MBA), the average loan size is now over $407,000.
3. Increasing rents
Rents have been on a tear in 2021, and with for-sale housing still limited, we can likely expect that to continue, at least into the early part of next year. According to Realtor.com, rents notched their first double-digit increase in August, with an 11.5% jump year over year. Rents on larger properties have been rising the most.
4. Homebuyer love letters may be going away
Homebuyers have used offer letters for years -- especially in competitive markets. They not only help buyers stand out, but they allow a potential buyer to make a personal appeal for the home (as well as maybe compliment the seller in the process).
These so-called "love letters" have been called into question lately, though, with many worried they violate fair housing laws. In fact, Oregon lawmakers actually banned the practice, and as of Jan. 1, buyers in the Beaver State will no longer be able to use them. The law's currently being challenged in court, but if it stands, it could lead to similar regulations emerging elsewhere in the new year.
5. Rising foreclosures
Foreclosures have been steadily increasing since moratoriums expired this summer. In fact, according to ATTOM Data Solutions, foreclosures were up a whopping 76% between October 2020 and October 2021. That activity is only going to multiply as we get into January, as mortgage forbearance plans expire for many homeowners. (The maximm length is 18 months, and about 1 million homeowners are still in forbearance.)
6. Volatile mortgage rates
Mortgage rates are largely projected to rise in the new year, but with the omicron variant of COVID-19 picking up steam, that may be up in the air. Typically, new variants (and other signs of potential economic turmoil) have caused investors to flock to the bond market, which sends mortgage interest rates down.
This hasn't yet happened with omicron (rates have held steady the last two weeks), but it's still early on for this variant. As it becomes more visible across the country, there's a chance it could have more of an impact. In short? Don't bet on anything, and if you're looking to buy or refinance, lock your rate early.
New year, new market?
January won't usher in a completely transformed market, but there are some trends you'll want on your radar if you hope to buy or sell a home. Keep in mind, though: Every locale is different. To make sure you're making the best decision, talk to a mortgage broker and real estate agent in your area. They'll have the latest data to inform your decision.