Marty Green discusses trends for 2022
Learn how turbulent times like the Great Recession, COVID-19 pandemic, and various supply-chain issues
have impacted the U.S. residential real estate market. Green also shares his predictions and expectations for the year ahead.
|Key Housing And Mortgage Lending Trends For 2022 By Marty Green.
For several years, the U.S. residential real estate market has been characterized by a shortage of new single-family homes — the result of an extended period of underbuilding following the Great Recession, compounded by the global COVID-19 pandemic and attendant supply-chain issues.
This shortage will continue throughout 2022. Though builders have added substantial inventory in recent years, it will take more than a year — or even two or three — to make up for what the National Association of Realtors estimates to be an undersupply of between 5.5 million and 6.8 million single-family homes necessary to meet existing demand.
To understand the magnitude of the nationwide housing shortage and how we got to this point, one need only compare the average number of homes built before and after 2008.
According to the U.S. Census Bureau, an average of 1.2 million new single-family homes were built each year between 1987 and 2007. Between 2008 and 2021, that number fell dramatically to only 697,000, leaving an annual gap of 500,000 single-family homes compared to the historical average.
Over a 14-year period, that shortfall results in a cumulative deficit of 7 million single-family homes, before accounting for the oversupply that existed in 2008, which most experts believe was between 1 million and 1.5 million homes.
While the housing shortage is pervasive nationwide, it is even more significant in the dynamic Texas markets of Dallas-Fort Worth, Austin, Houston and San Antonio, as well as in Phoenix, Las Vegas, Miami, Atlanta and other markets that continue to experience extraordinary population growth.
While I don't see the inventory shortage easing in 2022, improvements in the supply chain, labor market and other areas should help homebuilders continue to increase supply.
But it is important to understand that it will take homebuilders many, many years to address this massive shortage because of the time and capital it takes to add available lots, obtain necessary permits, acquire additional construction crews and contract for the necessary construction products. Acquiring crews could be particularly challenging in this labor market, where there are approximately 350,000 open construction jobs to be filled, according to the U.S. Bureau of Labor Statistics.
In addition, single-family housing starts in 2021 were still only 1.12 million units, according to the Census Bureau, compared to approximately 1 million new households created in the U.S. each year, according to the Pew Research Center. The bottom line is the shortage of single-family homes will continue to make this a seller's market in 2022.
|Renovation Loan Programs Are on the Rise
Due to the pervasive shortage of homes, we've seen a dramatic increase in mortgage lenders and builders offering renovation loan programs. Many borrowers are building, expanding and/or remodeling their homes rather than moving, given the lack of available homes that fit their needs or price limitations.
In addition, the fact that the average U.S. home is now over 41 years old — compared to 34 years old in 2007 — means that the need for maintenance or updating is more pronounced. But given the increase in home prices in virtually every metropolitan area, renovation or expansion often makes terrific economic sense. Mortgage lenders that can't offer a robust renovation and construction product may be at a distinct disadvantage in coming years.
However, these loan programs require special legal expertise, so it is critical that lenders consider the legal restrictions before venturing into this space. In December 2019, the Consumer Financial Protection Bureau issued guidance regarding the treatment of construction loans, and lenders would be well- served in reviewing those requirements to ensure their disclosures and other compliance-related matters are addressed in accordance with this guidance.
Rising Rates Will Challenge Lenders
Marty Green discusses “Key Housing And Mortgage Lending Trends For 2022,” with Law 360. Click here to download original article
These loans are trickier from both a disclosure and loan documentation standpoint, so lenders must consider some of the complex legal challenges to avoid major issues. Consumers will also need to be vigilant about locking in their interest rates — whether a fixed-rate loan or an adjustable-rate mortgage — for a sufficient period to facilitate the closing of the loan.
I anticipate that lenders will lack the flexibility to offer borrowers free rate-lock extensions as they have in the past, as they become too expensive in a rising rate environment, and lenders will need to charge to offset this cost.
The Great Resignation
Work From Home or Work Somewhere Else
|Not So Fast on the Job Change
As individuals look at new job opportunities, they need to be aware that a job change can complicate mortgage qualification. Accordingly, people in the market for a new home or a refinance of an existing mortgage may want to delay leaving their jobs until after their loans close. A recent job change can complicate the underwriting of a mortgage, particularly if the borrower is changing fields or is in a job that relies heavily on bonus or commission income.
|The Second-Home Market Will Continue to be Robust
Expect the second-home market to continue to be very hot. As people became more comfortable working from home, many with the means to do so quickly figured out that they could work just as effectively from a second home overlooking the beach, mountains or lake as they could from their home in the city or suburbs.
As a result, the inventory for homes in scenic locations is very scarce. As much as U.S. housing prices have risen overall, prices in strong second-home markets have increased even more. In 2022, I expect that executives and others who can afford second homes will take advantage of the freedom that Zoom and other technologies have created. Therefore, we should see the demand for second homes continue to be robust in 2022.