With 2022 knocking at the front door it’s time to take a look at what we should expect in the upcoming

year. I have to admit that 2021 wasn’t great in many ways but it certainly had its bright spots. The real

estate market continued to climb and the 2021 Spring market was chaos at its best. Fortunately things

settled down in the fall so buyers had an even chance at buying a home. What will drive 2022 market?

The questions I’m getting most often about the upcoming market are #1 centered around the inflation

we’re seeing in gas and food prices and whether that will drive interest rates higher and affect the

housing market. Number two with all the crazy inflation that we see in housing prices over the past

several years is there going to be a market crash? Number three should I be waiting for prices to adjust

or jump in even though I think prices are just too high?

Inflation is an interesting topic when it comes to the real estate market. Over the past several months

we’ve seen prices of everything including gas and food go to record levels of inflation. That tends to

drive interest rates up which has a settling effect on the real estate market. For instance a buyer putting

20% down on a $500,000 house at 3% interest, the payment with principal and interest is $1,686. If you

take that same $1,686 at 4% the house you can afford with 20% down is $441,548. So inflation raising

interest rates could have a depreciating effect on house prices. Caution, don’t hold your breath. With

the kind of demand we’ve seen I don’t expect to see evening slightly rising interest rates affecting the

market in any meaningful way.

The question of crazy inflation and high prices spawning conversations about housing bubbles it’s

important to try to understand what is driving the market. Interest rates can be to transitory. Seasonal

influences change constantly as do the seasons. The undeniable tide that is, I believe, the underlying

driving force in the national real estate market is demographics.

Our housing market, including the land-use policies, were primarily developed while Gen-X was the

primary buyers in the market. Baby boomers had bought their homes and were on their way out. The

millennial’s had not yet come of age. In pure numbers there are 65.13 million in the Gen X generation.

Our housing markets are designed around that kind of demand. It starts with land-use planning and

filters into developing of new lot inventory and then into housing permits and construction starts.

Now bring in the millennial generation with 82.2 million strong and you have a 26% increase in home

buyers and renters. Keep in mind that it doesn’t matter if you’re buying a house or renting one it’s about

the number of roofs and number of bodies. Everyone needs a place to live whether they aree renting or

purchasing. So we have a housing production system that was designed for a far lower capacity than we

are running at. And the one undeniable thing about demographics is that it’s like a tide. It’s here it can’t

be stopped so you have to deal with it.

How does that affect our market? It means that the demand will continue regardless of economic and

seasonal cycles. The good news for homeowners is that Gen Z right now is running at 86.4 million

meaning that even after the millennial’s have purchased their first and second homes and have settled

down in their demand cycle Jen Z will be buying even more homes. My advice? Buy a house while the

interest rates are low. It will be one of the smartest investments of your life and will provide warmth

and a place to call home in the meantime.