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 in the California real estate market in 2022. 

1. Interest Rates

Interest rates are anticipated to rise this year. Over the past few years, we've enjoyed rates that have largely hovered around the 2% mark, a significant factor fueling California's real estate boom in 2020 and 2021. A critical point for buyers to note is that interest rates are almost certainly on the upswing. Dr. Lawrence Yun, the chief economist at the National Association of Realtors (NAR), predicts that the 30-year fixed mortgage rate will climb to 3.5% by the end of 2022 as the Federal Reserve raises rates to curb inflation. Buyers considering a home purchase this year may want to act sooner rather than later to take advantage of current rates before they rise.

Although the increase in rates will still leave them at historic lows, the rate hike could affect the purchasing 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. 

It's crucial for listing agents to manage sellers' expectations realistically for 2022. With ongoing challenges such as the coronavirus pandemic, particularly the spread of the new Omicron variant, the real estate market is poised to differ significantly from the trends observed in recent years. While there's still a good chance of receiving multiple offers on a property, the likelihood of receiving offers with extreme terms, such as significantly exceeding the asking price or waiving all contingencies, may decrease. Sellers should work with a knowledgeable local professional who can provide guidance tailored to these evolving conditions. In the current market, setting the right price will be a key strategy for success.

The other side of this is for buyers who 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 in 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.