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Real Estate Market Thoughts: Q4 2021

As we finish out the final quarter of 2021, it’s time to take stock of everything that has happened so far this year. It’s also a perfect time to look ahead to the rest of the year and predict what to expect in 2022. Of course, nobody could have predicted the roller coaster we experienced in 2020 and 2021 because of the pandemic. Still, we try to set our expectations and plan for what’s ahead.

Below are some of my market thoughts for Q4 2021 in the Chester County market and surrounding Southeastern Pennsylvania and Northern Delaware communities we serve.

Housing Supply

Low inventory has been the theme of the past two-plus years. It continues to keep transaction counts from getting as high as they could be. The inventory we do have tends to fall into one of two categories:

  1. Really good homes that are priced correctly and will sell quickly; or
  2. Homes that sellers think the market will buy regardless of price or condition

The homes that fall into the first category are easy to sell. They won’t stay on the market long. The ones in the second category present additional challenges. They tend to sit on the market longer until the prices are cut. There is healthy demand for housing, but buyers are savvy and the “seller’s market” will only bear so much if a property is overpriced or unappealing because of poor condition.

We do see more sellers considering selling their properties. However, the demand continues to outweigh the supply. For those homeowners who have held onto their previous primary residences as rentals the past few years, we may start to see more of these properties come on the market. The sellers will have a limited capital gains allowance window that is closing quickly along with an increase in the capital gains rate being discussed in Washington. Investors may also start getting rid of their real estate portfolios to take advantage of high prices and avoid the same capital gains concerns.

Mortgage Rates

You should expect mortgage rates to increase over the next 6-12 months. They are still historically low right now, but factors such as inflation, tapering of Federal Reserve bond purchases and Treasury bill markets will all contribute to higher interest rates on mortgage loans. They may hit the high 3% range during this period. This will have a direct impact on the buying power of home buyers as they also absorb higher home prices.

We think things will get interesting as mortgage rates increase. Buyers will panic because they will be concerned about being priced out of the market. Sellers should take note that as rates rise, the number of potential buyers will be reduced. This decreases demand and will ultimately hurt home prices.

Housing Prices

While the double-digit home price increases of the past two years have been shocking, we do not believe the current rate of appreciation is sustainable. Will prices continue to climb? Yes. However, the appreciation rates may drop to single digits. To find affordable prices, home buyers must look further out of the cities where land is more plentiful. Suburban and rural properties will offer more value for their dollars than urban properties.

If you plan on staying in your next home purchase for many years, you will want to buy where you think people will be (or will want to be) in the next 10-15 years. This will enable you to be positioned in a high-demand market when the time comes to sell. If you are looking to buy what is already desirable today, then be prepared to pay handsomely for your property in this seller’s market.

Buyer Demand

The demand for homes continues to be strong. This is a demographic phenomenon driven by millennials who are in the prime home-creation years. There are also regional shifts taking place as people reassess their housing priorities. Where people want to live may be affected by factors such as hybrid/remote work and schooling opportunities, lower tax states, desires to be closer to family and many other reasons.

We have seen some easing of demand as buyers in lower price ranges have been priced out of the market or can’t compete because their financing isn’t as strong. However, there is still enough overall buyer demand to deem this a seller’s market. Homeowners and potential home sellers need to beware, though. These conditions will not last forever and there’s a point where waiting too long may cost you. Buyers can only tolerate increased prices and increasing mortgage rates for so long. You don’t want to be the seller who holds out and is then disappointed when you don’t get the kinds of offers you want. You might not get the bidding war you imagined. You may only get one offer at or below your asking price. Buyers may be less likely to waive contingencies and inspections. It may take much longer to sell your property, even if it is priced well and properly prepared for the market.

These are some of our Q4 2021 real estate market thoughts. Whether you are planning to buy or sell in the near future or looking ahead to 2022, it’s never too early to start preparing. Understand the market, study the trends and anticipate what it will take to make your move as successful as possible.

For help with all your local real estate needs, contact The Cyr Team today for a no-obligation introductory real estate consultation. Let us help you make the most of your home buying or selling opportunities in Chester County or the surrounding Pennsylvania/Delaware communities.

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