What To Expect From California’s Real Estate Market in 2022

Hazel Emlen is an experienced realtor in Vacaville and a member of the California.com Recommended Business Program, which highlights only the best businesses in the Golden State. To be featured, each business must be highly regarded, have a unique California story, and make a positive impact in their community. 

As we roll into the new year, one of the hottest topics continues to be the real estate market.  2020 and 2021 proved to be record-breaking years for the real estate industry. Most people in the industry were the busiest they had ever been. In describing the last two years, the word that comes to mind is ruthless. This market has been going what seems to be 100mph! It has really been the perfect storm with the real estate market experiencing extremely low inventory in markets across the country with demand unlike anything that we had seen before. But the question is, "Will 2022 be the same market as the last two years?" The short answer to this question is yes and no. Here are 3 reasons why I think we should expect some changes for the California real estate market in 2022. 

1. Interest Rates

Interest rates are expected to climb this year. We have been blessed with the last couple of years where interest rates have floated for the most part in the 2% range. The low-interest rates were a major contributing factor to California’s real estate craze that we saw in 2020 and 2021. One large takeaway for buyers to understand is that the interest rates for sure will be increasing this year. Dr. Lawrence Yun, National Association of Realtors (NAR) chief economist, expects that the 30-year fixed mortgage rate will increase to 3.5% by the end of 2022 as the Fed raises interest rates to control inflation. Those buyers who have been considering purchasing a home this year might want to consider doing so sooner than later. 

Although the increase in rates will still leave them at historic lows, the rate hike could affect the purchase power of some buyers. One thing that some buyers will want to keep in mind if they are buying new construction with a completion date of months down the line, is that the rate you were quoted initially potentially will be different when you are actually able to lock in the interest rate closer to the close date of your home. For most lenders, that optimal period to lock is usually 30 days out from the closing date. So be sure to keep in frequent contact with your lender on where rates are at as you go—rates will be ever-changing! 

2. Inventory

Inventory continues to remain at historic lows. The demand to purchase a home is still very high compared to the amount of inventory that is on the market. 2022 will once again remain a sellers’ market. Those who have considered selling their homes might want to consider getting all of their ducks in a row now to capitalize on the market we are headed in. Although sellers will remain with the upper hand in the market, they want to keep in mind that this market is much different than it was two years ago. 

I think it is important for the listing agent to set realistic expectations with sellers on what to expect in 2022. Our country is dealing with several forces at hand, including the coronavirus still an ever-present presence in 2022 with the spread of the new omicron variant. The market that we are in is not expected to be like the ones we have seen for the last couple of years. The chances for multiple offers are still likely, but the odds of getting an offer with those insane terms we were seeing, i.e., thousands over the asking price or no contingencies is less likely. Be sure that you are represented by a local professional in your area that can guide you accordingly when it comes to selling. Pricing is going to be key in this market. 

The other side of this is for buyers they want to understand that inventory will still be low, but it is expected to increase. This will be beneficial to buyers as they will not be facing the same amount of competition that we had been seeing. First-time buyers and VA buyers can rest assured that they will be able to find success in this new market.

3. prices

When I describe how pricing has been in California’s real estate market over the last couple of years, the scene I would picture is that you are on a roller coaster that has been going up, and up, and we have not gone down the drop yet. The hard truth is that prices are not expected to go down—not for the demand that we are still seeing. 

For all those buyers that have been waiting on the sidelines for the market prices to drop for the last several years, they have missed out on the opportunity for some pretty sweet equity. Prices are expected to climb still in 2022  but at a much slower pace than we have been seeing. Experts expect somewhere about 5–7% for 2022. There is no expectation of prices coming down. The one thing that will play a major part in purchasing for buyers is interest rates. For a buyer who is rate conscious, they will really want to consider buying as early as they can in 2022. Your purchase price power will be impacted not only by the natural increase with the demand in the market, but by the rate that you are able to lock in. 

All in all, the 2022 California real estate market is expected to be another great year. Although there will be some changes compared to the years past, the overall will be good for both buyers and sellers. As always, you will want to be sure to consult with a local licensed professional about your specific market and keep California’s real estate laws in mind, but the market in 2022 will be a nice breath of fresh air for the industry.