Trying to predict what will happen in the residential real estate market in 2022 is a bit like trying to forecast the weather months in advance, but while the future of home sales and development has become increasingly unforeseeable, real estate professionals continue the work of advocating for their clients.
We spoke with Seattle real estate leaders to learn what they see coming down the road for the industry. While buyer preferences for more space — both inside and outside the home — remain and supply chain issues continue to stifle home construction efforts, other factors, such as the potential increase in interest rates, are expected to change the game in 2022. Check out our Q&A with some of Seattle’s top players to learn more about what they’re planning for over the next 12 months.
* Eddie Chang, senior global real estate advisor, Realogics Sotheby’s International Realty
* Jeremy Collett, executive director of capital markets, Guaranteed Rate
* John Deely, executive vice president of operations, Coldwell Banker Bain
* Matthew Gardner, chief economist, Windermere Real Estate
* John Madrid, managing broker, Realogics Sotheby’s International Realty
* J. Lennox Scott, chairman and CEO, John L. Scott Real Estate
* Michael J. Thies, mortgage loan officer, Key Bank
* Michael Villano, national director of sales, Veterans Lending Group
Will residential real estate have a good 2022? Why?
Scott: 2022 will be another very good year in residential real estate. As mortgage interest rates slowly increase next year, buyer demand will grow stronger as more buyers enter the market to buy a home before interest rates go higher. Over the winter, those looking to sell their home and then purchase a new home will be locking in a great interest rate.
Gardner: As mortgage rates continue to rise in the coming year, homebuyers will not want to miss out on what are still remarkably low rates, resulting in increased demand. Moreover, many homebuyers are currently sidelined because their companies have yet to announce their long-term plans for remote working. It’s assumed that many businesses will start to make those announcements in early 2022, and this could cause demand to rise further as buyers — and sellers — get off the fence. The bottom line is that I expect sales to trend higher next year, but demand is still likely to outstrip supply.
Madrid: While the market will likely not be as frothy as it was in 2021, it will still remain a seller’s market in most of the Puget Sound area with less than one month of inventory and multiple offers still common.
Deely: Yes, job formation, lack of new construction options and low interest rates.
Chang: Yes. King County still faces a housing shortage of over 300,000 units. We still have not nearly enough supply for the strong demand in our growing city.
What changes have you made to the way you do business since the onset of the pandemic, and what changes do you anticipate making in the coming year?
Chang: We’ve made efforts to offer more online assistance. We’ve worked with out-of-state clients through video home tours. And we’ve dedicated resources to meeting online and trying to stay connected digitally. On the list side, we’ve focused on following the safety rules and guidelines with our interactions with dedicated efforts towards public safety. We have set up listings with clean booties and gloves available, sanitizing throughout the home and even done some contact tracing efforts for open houses.
Deely: Online resources for client meetings, training and collaboration. As the COVID restrictions sunset, many of the practices put into place will fall to the wayside, and there will be an opening up and relaxation with more in-person interaction. Brokers are social people and thrive when interacting in person.
Scott: With the onset of the pandemic, we quickly adjusted our business practices to support social distancing and follow CDC guidelines. We’ve continued to follow guidance related to social distancing and masks and have also embraced a range of digital tools during this time to elevate our client service.
We’re in a video-focused world, and as a company, we’ve encouraged “everything video communication” when it comes to education, marketing and client relationship building. In addition to innovating to stay ahead of the curve when it comes to technology next year, we also can’t underscore enough the value of excellent personal representation in today’s market. In 2022, our agents will continue to help their buyer clients secure the home of their choice and assist their seller clients in showcasing and selling their home.
Madrid: Continuing to focus on your clients’ best interests, making sure they have a great experience, asking for referrals and remaining in touch with them after closing are timeless strategies with will help new and already successful brokers continue to be successful.
What can agents do to succeed in 2022?
Madrid: In addition to the above, taking care of your own and your family’s mental/physical health; doing the things you don’t want to do when you don’t want to do them and to the best of your ability; work on your business and not just in your business; optimize your systems; continue to be optimistic but plan for an eventual downturn in the market — it will happen eventually.
Chang: Understand your processes and adapt. Touch points are still critical for getting new clients and staying top-of-mind for potential future clients. What has changed is how to stay in touch and connect with them. Part of that is leveraging new technologies to stay in contact, and the other is understanding that quick returns don’t often happen in this business. Stay dedicated to your routines that made you successful.
Deely: Keep on top of the rapidly changing market by watching local trends, educate their clients with market data, so they are prepared for the process.
Scott: In 2022, successful agents will look to deepen relationships with existing clients and also attract new clients. With the ever-changing real estate industry, it’s also important to take advantage of programs that can help you grow your business. At John L. Scott, we offer the Market Ready Plus+ program to help sellers prepare their home for sale, as well as the Instant Purchase Plus+ program for the seller that does not want to sell their home through the traditional means.
Where will the hottest communities and neighborhoods be next year?
Gardner: I anticipate that demand will be greatest in suburban and exurban markets.
Scott: In the Puget Sound area, the hottest communities are pretty much anywhere with “island” in the name. The market is incredibly hot on Mercer Island, Vashon Island and Bainbridge Island!
Madrid: Seattle will always be popular given the limited supply of homes but expect continued super-strong demand for areas outside the city where more jobs, oftentimes better schools/quality of life and less “city” issues can be found. Second-home markets will continue to be in demand, but expect a slowdown in prices.
Chang: This is especially hard to predict, but job growth tends to help with housing appreciation. With Amazon expanding in Bellevue, Google expanding in Kirkland and Facebook expanding in both Bellevue and Redmond, I would guess that will help appreciation in those areas.
Deely: Bothell, Everett, Kirkland, Lake Stevens, Spanaway, Marysville, Puyallup, Bonney Lake and North Seattle — 98103 and 98115. SW Washington — Ridgefield. Eastern Washington — Chelan — Wenatchee.
How will tech ramp up in 2022?
Deely: Clients are looking for more privacy from data mining during their home search. Brokers have to use broker/industry-provided mobile applications to keep their clients’ information private and secure. The mobile apps will increasingly be the primary tool used for both market research and communication.
Scott: Technology enables us as real estate agents to communicate in real time with the world. In 2022, we’ll continue seeing the evolution of integrated technology platforms for our agents and clients.
What growth do you expect for your company next year? Do you expect your business to thrive, decline or remain stable? Why?
Scott: The 2021 real estate market was incredibly hot and will be hard to beat next year.
Headwinds the real estate market will face in 2022 include affordability, inflation in the economy, the potential of higher taxes and additional economic factors (including supply chain issues, struggles to fill empty positions, etc.).
However, we still will have three factors that will continue moving the market forward in 2022: strong regional job growth, historically low interest rates and a continued desire to lay down roots elsewhere that I call “The Great Reshuffle.”
Chang: I would like us to add more value to our clients this year. That will help grow our business, but also lead to satisfied and empowered clients. I hope our team grows in both clients and business, but it’s how we grow that is important to us.
Madrid: When the pandemic first hit, I thought I would never sell a home again, and the exact opposite happened. 2021 was my busiest year ever. I learned to be more agile and efficient with my limited resources. Barring any major economic catastrophe, I expect 2022 to be just as busy if not busier.
Deely: We expect continued growth as we leverage our customer-driven, technology-enabled and strategically competitive differences to attract clients and brokers to gain an advantage in the marketplace. Our business model of high support, tech-forward and quality, international brand empowers brokers to increase their sales volume above industry norms. We see many people coming out of the pandemic looking for new career paths in the real estate industry. The real estate industry provides flexibility with low startup costs and low risks with a great upside potential. Our support and training are renowned for high success rates among both entry-level and experienced brokers.
Are you seeing continued migration to the suburbs, or is that beginning to reverse? What does it mean for sales?
Madrid: Again, there will always be people that want to be in the city, but I expect the move to the suburbs to continue (more new jobs, oftentimes better schools/quality of life and less “city” issues) as our region begins to shift demographically to include more and more young families. That said, many younger homebuyers will continue to want to near their jobs as where they work is a big part of their social identities.
Scott: If there was more inventory available, there would be more transactions in the suburbs, but we are currently virtually sold out across many markets. The demand for homes surrounding the job centers of Seattle and the Eastside is very strong due to a solid local job market, but there aren’t currently enough homes to satisfy this demand.
Gardner: Yes. I anticipate that many companies will continue to allow employees to work from home or work some kind of hybrid schedule. As such, there will be solid demand for homes in locations that are somewhat removed from the core job centers, but that still have reasonable access to them. In essence, I believe that the work-from-home paradigm will allow buyers to look somewhat further away from their offices — where homes are less expensive.
Chang: There is continued migration to suburban areas as people are anticipating more hybrid work. This ties into how the work-from-home trend is changing the market but we have observed higher value placed on more square feet in a home, often at the expense of being a little farther away.
Deely: Yes, brokers are finding themselves with larger areas to cover as clients find themselves driven to larger lots and homes. Work from home will be a permanent fixture for American businesses and many homeowners will take advantage of that option and relocate to second home and lifestyle-oriented communities. Sales will remain strong due to employment opportunities and a continued influx of workers.
What will be the biggest challenges and opportunities for agents, lenders and brokers in 2022?
Deely: Keeping themselves top of mind, in meaningful ways, with their sphere of influence as homeowners decide to move to new areas and sell their existing property.
Scott: The biggest opportunity for brokers in 2022 will be to continue serving as the personal real estate consultant for each individual buyer and seller. This isn’t just an opportunity — being engaged and building a trusted relationship is where business takes place in real estate.
Madrid: Much will be determined by the local/national/international job market and overall economic situation. Consumer confidence will be key.
Is the work-from-home trend changing the way people are shopping for homes? How are buyer preferences changing beyond wanting more space for a home office?
Chang: It’s not just one home office, often it is two home offices. Answered previously.
Scott: The work-from-home trend has made many individuals really look at what they value in the place they call home. Beyond a dedicated home office space, many remote workers look at overall usability of their home’s space and how both indoor and outdoor living can look. When looking at the outdoor space, it’s not just about having a backyard for a dog. For many, it’s about creating inviting spaces outdoors through features like a covered porch, a fire pit area or space for lawn games during the summer months.
Madrid: More buyers are open to locations further away from major job centers if they have the flexibility to only need to be in office a couple days a week. This will benefit markets that are further out. “Flex” spaces will continue to be popular.
Deely: Yes, more people than ever are becoming the typical relocation buyer by spending more time online as they move through the sales cycle. They are then making a focused purchase trip with targeted properties or areas in mind. Lifestyle-oriented communities are top of mind as quality-of-life pursuits become a right-now need as opposed to a retirement goal.
Do you think the number of new people getting real estate licenses will grow in 2022?
Deely: Yes, we see many people coming out of the pandemic looking for new career paths in the real estate industry. The real estate industry provides flexibility with low startup costs and low risks with a great upside potential. In 2021, we saw the ranks in NWMLS grow to new heights in total number of subscribers and that trend will continue.
Chang: The number is always growing. It’s great to see so many new people getting involved in the industry, and I do think there is enough work to go around.
Scott: In 2022, the number of new people getting real estate licenses will continue at a strong pace.
What do you see happening with home prices in 2022?
Madrid: Barring any major issues (new variant, global supply chain issues, tanking of the economy), I expect high single digit price appreciation and hopefully a more balanced market.
Chang: Home prices will continue to appreciate. Fundamental market data says we still face a major housing shortage. Both rising interest rates and buyer fatigue may slow the growth, but market fundamentals still indicate that prices will appreciate in the coming year.
Gardner: Home prices still have room to rise, but the pace of appreciation will start to trend back to historic averages. That said, I still believe counties that are adjacent to the major job centers will perform very strongly in 2022. I pay close attention to movements in listing prices rather than sale prices, and there has been a fairly significant drop in listing prices in King County which suggests that the market may be cooling. Pierce County has seen a similar trend, but I think that is a bit of an anomaly, whereas listing prices in Snohomish County are holding up.
Scott: In 2022, I anticipate we will see positive price appreciation although it will be a bit more mellow than it has been over the last several years. I expect home prices will follow typical seasonal patterns in the year ahead.
Deely: Prices will level off and continue moderate growth.
What impact is the affordable housing crisis in the region having on the local market?
Gardner: Affordable housing is a very significant problem that is only getting worse. Even if buyers focus their search in less expensive areas, many are still finding homes that are priced beyond their reach. This is particularly true for first-time buyers. For example, less than 4% of the single-family homes currently for sale in King County are considered affordable for first-time buyers.
Chang: This is a long and complicated question I would be happy to sit down and have further discussion about. In short, rising prices have pushed low- and middle-income people out of the metropolitan areas. This has created socioeconomic disparity within our society.
Deely: In order to have sustainable and thriving housing biomes and communities, we need the full spectrum of starter homes through assisted living communities. We are optimistic that local and state governments will finally listen to the message that the real estate industry has been preaching for years to decrease the roadblocks of impact fee costs and time to build housing.
Thies: KeyBank has niche products in the affordable housing sector. Lenders continue to focus on specific locations to ensure the LMI communities have products and services and can continue to grow.
Villano: It’s mainly an inventory issue when certain buyers are more well-equipped to make strong offers on a property, which ultimately get accepted. The values that are negotiated in these contracts have an inflationary effect on the cost of homes, and the competition drives less prepared borrowers into a situation where they cannot win an offer with relative ease. Generally, if they have a great agent and lender team, along with some perseverance, they will eventually win. Currently our inventory has increased from the lows of 2021, and it’s becoming easier for buyers to win homes without excessive attributes to the winning offer.
What needs to happen at the state and local level to bring more housing to the Seattle market?
Deely: Lower impact fees, recommitment to the Growth Management Act, increased zoned density through multifamily housing in neighborhood commercial districts and along key arterials, maximized heights and zoned densities in Sound Transit station areas to leverage this multi-billion-dollar investment in transportation infrastructure. Ease the addition of accessory dwelling units and detached accessory dwelling units in single-family zones.
Brokers need to work in their respective jurisdictions and regionally to increase zoned capacity throughout the region to enable an adequate supply of housing, relative to demand.
Madrid: Rezoning for residential of underutilized property near mass transit and retail; expansion of mass transit; incentives for companies to allow for more work from home scenarios if applicable.
Gardner: The Washington State Legislature needs to review zoning, especially in the central Puget Sound area. What was sufficient back in the 1930s, when zoning maps were first created here, is out of touch with today’s needs. It’s highly unlikely that the region’s urban growth boundaries will increase, so we have to work with the land we have and consider where we can add density (sensitively) to existing single-family neighborhoods. I would also like cities and counties to look at land that they own and consider rezoning these areas for residential use. This is the “low hanging fruit” that offers the fastest road to providing much needed additional housing.
Chang: Upzone and increase urban density, especially around TOD (Transit Oriented Development).
What impact will environmental concerns have on the Seattle real estate market in 2022?
Deely: In the early 1990s, our region was poised to sprawl in ways that would have threatened rural and resource lands, with suburban development. Instead, we passed the Growth Management Act to protect those lands. We did so by agreeing to direct jobs and housing growth into urban areas with the goal of increasing zoned capacity for residential and commercial uses as well as building the underlying infrastructure to move people around the region and support urban growth. As the first comprehensive plans were developed, the Seattle King County Realtors worked with elected officials, planners, demographers, economists and community members to set a course for success.
Many have forgotten the grand bargain of directing growth into urban areas to save rural lands and we need to encourage elected officials and government agencies refocus on that vision. Not only will it prioritize environmental concerns, but it will help our affordable housing crisis.
Chang: The Puget Sound area has done an excellent job protecting our environment and mitigating the environmental impact of new construction. However, this process does create more expenses for developers which impacts developers’ ability to create more affordable housing. If cities adopt planned action, it would decrease the cost of development while still protect our environment, and still result in more affordable housing.
Madrid: While the region fares better than many parts of the country, there won’t be any part of the world that won’t be negatively impacted by global climate change. Long-term, Seattle and the Puget Sound region, given our milder climate, abundance of natural resources and progressive approach to these issues, will allow us to attract and retain populace from other parts of the country for those who can afford to live here.
What do you expect to see in the mortgage lending industry in 2022?
Villano: I expect to see rates rising for a period of time followed by a correction due to an economic recession brought about by government overspending, lack of workforce, supply chain back up and inflation.
Collett: In 2022, we’ll see a continued focus by the industry on growing purchase market share. I expect interest rates to rise, which means refinance activity will fall. We’ll also see lender profit margins get squeezed, which could result in an uptick in consolidation within the industry. I expect the Government Sponsored Enterprises (GSEs including Fannie and Freddie) to focus heavily on affordable housing. In addition, we’ll likely see a slew of new products and energy poured into expanding home ownership opportunities to communities traditionally underserved by the market.
Thies: We’re anticipating the refinance market to begin to decline. Rates have been so low for such a long time, many clients who are focused on refinancing have already done so. If they haven’t, now is the time to examine if it’s the right move. At the same time, we’re expecting purchasing to rise. The possibility of rising rates can push buyers on the market to make the investment to save money in the long-term.
Do you anticipate that your production will go up or down?
Thies: We anticipate our production going up. As a team, we’ve grown so much over the last half-decade that we’re setting new records of processing new home loans each year. We’re also a relationship bank. As more of our clients consider making their own changes, we’re here to support them, along with support for new clients looking to buy a home.
Villano: I anticipate that my production will rise to surpass 2021 loan volume.
Will interest rates remain low next year, and what should homebuyers be watching for regarding mortgages?
Collett: While interest rates may move slightly higher, I do believe they will remain at historically low levels, maintaining an advantageous environment for homebuyers. Professionally, I’ve been through about 6-8 rising rates cycles and they always fall short of expectations; I simply don’t think the markets can function on significantly higher rates.
Villano: I don’t think government and conventional interest rates will surpass the 4% threshold, but they may for a period of time. People should be purchasing homes and consolidating debt through cash-out refinance in order to take advantage of the still historically low rates. What to watch for? Consumers should watch that they don’t wait until rates rise. It’s already happening so now is the time to get out there and make your move.
Thies: We have been anticipating interest rates increasing over the past few years. However, they have remained at near-record lows. As changes may come from the federal level, we could see the recent slow trend upwards really increase. However, the rates could still fluctuate depending on the state of the economy.
What will be the most popular loan types?
Thies: In 2022, for the Seattle market, purchases will continue to be the most popular, especially in the jumbo space.
Villano: Conventional and government loans are the best products available in the market for most conforming and high balance loan amounts; that won’t change. Jumbo loan investors are coming out with lower down payment options without PMI and are also finding ways to use unique types of compensation for qualifying purposes. These offerings expand the utility of loan products for consumers and investors.
Collett: I think conforming and jumbo 30-year fixed-rate mortgages are here to stay. With a couple of rate hikes expected by the Federal Reserve in 2022, we will likely get a flatter yield curve, which doesn’t bode well for adjustable-rate mortgage products. With tighter profit margins, lower origination volumes and the sharp focus on affordability by the GSEs, we’ll likely see credit widen a bit.
How will tech change for loans in 2022?
Villano: Tech is the equivalent to easier access for consumers. It speeds the process of loan origination, enhances the borrower experience through ease of use, allows third parties to communicate more efficiently and also creates more accessibility for consumers with unique dispositions such as rural location or mobility issues.
Collett: With lower volumes, we’ll probably see additional resources poured into mortgage technology, which we are certainly doing at Guaranteed Rate. Lower profit margins means lenders will have to continue figuring out how reduce the cost to originate a loan. We should see the GSEs focus more heavily on mortgage tech as well; some of those initiatives lost focus under the previous administration, whose goal was to de-risk the agencies and move them out of conservatorship.
Thies: The addition of tech into the process will help to add efficiency and ease. The mortgage process is consistently evolving and becoming more digital which helps to expedite the process for homeowners and lenders, especially in this fast-paced environment.
What needs to happen at the state and local level to bring more housing to the Seattle market?
Villano: In my opinion, this is primarily a federal issue with regard to political uncertainty, supply chain delays and other pandemic-related effects which stifle production and reduce availability in the workforce. In Washington, expedited permit review, re-zoning efforts, reduced operating costs for contractors and an overhaul of the Department of Labor & Industry would all be welcome additions to the Washington homebuilders demographic.