Many are wondering, what are Springfield’s housing market predictions for 2022? As many have reported Springfield’s housing market has been setting records on multiple fronts throughout 2021. Springfield record high housing prices, record low interest rates, low available home listings, what does it all mean?
2021 Housing Recap
2021 has been a wild year in real estate for Springfield and the surrounding area. Like the rest of the country we experienced a shortage of homes for sale, supply chain issues, and decade’s high inflation resulting in home values increasing to record highs in 2021. The average sales price for a home in Springfield according to the Greater Springfield Board of Realtors (GSBOR) in 2020 was $192,971 the sales price for 2021 was $221,245. This is over a 14% increase for the year with days on market dropping from 63 days to 21 days. That is a 49% increase since average sales price in 2016.
Many factors were driving up the home values in Springfield and across the country. There were more buyers than ever with rapidly rising wages due to a shortage of workers and record low interest rates. There was also a slower rate of new home construction due to supply chain shortages and record high lumber prices. Simple supply and demand, low inventory high demand prices rise.
This has been an unusual year in that it was a sellers market with the home values increasing at a higher than normal rate. This was fueled by low unemployment numbers, record low or near record low interest rates so more people could qualify for mortgages. The record low or near record low interest rates also presented a good time for buyers to purchase despite the rising housing prices, if they could find a home to buy before the other buyers. Like I said, it has been a crazy time in real estate for 2021.
The big question is how does all of this affect 2022, more crazy or more towards normal? To get to this answer we have to look at all the related factors affecting home values. For home owners the good news is home values are not going to decrease any time soon. The record high increases will start to slow as new construction starts to normalize as supply chains ramp back up and labor shortages decrease.
Pull Back on Bond Purchases
The last to slow the housing market back to more normal levels are the big announcements by the Federal Reserve (commonly referred to as the Fed) in the last few weeks. Inflation is at the highest levels in over 40 years. To curb the inflation and rising housing costs the fed has indicated their intention to taper off buying bonds, a method to stimulate the economy. “Economic developments and changes in the outlook warrant this evolution,” Jerome H. Powell, the Fed chair, said of the decision to pull back on bond purchases more quickly. The bond buying program is on track to end completely by the end of March.
Interest Rate Increases
The Fed has also indicated that they expect 2 to 3 interest rate hikes, with the first one coming as soon as March. “The Fed is on a glide path to hiking in March,” said Neil Dutta, an economist at research firm Renaissance Macro. “It is hard to see what is going to hold them back.” The Fed leader for months blames the high inflation for 2021 was caused by supply-chain bottlenecks and would self correct on their own. But Fed Chairman Jerome Powell has seemed to change that position, “While participants generally continued to anticipate that inflation would decline significantly over the course of 2022 as supply constraints eased, almost all stated that they had revised up their forecasts of inflation for 2022 notably, and many did so for 2023 as well.”
When the Fed raises the federal funds target rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments. For example a $300,000 home loan at 3.5% currently has a payment around $1,340 a month, at 4.5% that payment goes up to $1,520 a month and increases the overall 30 year cost of the loan by $62,000. This example shows how the Fed raising interest rates will slow down the housing market. The link for the Fed Chairman Jerome Powell press conference is located down below. To read more about what the Fed is planning CLICK HERE
That is a lot of information to take in, so I will give you a brief recap for Springfield’s housing market for 2022. The home values in 2022 will continue to increase but slowing back towards a more normal rate of increase. Interest rates will increase as the Fed raises rates mortgages will have higher costs. This also shows that if you are thinking about making a move to a new home now would be the best time to do that with rates at or near historic lows. Now would be a good time to at least explore if this is a good time to make your move, CLICK HERE to get started.