The Springfield real estate market in 2021 was interesting for many reasons. It was very dynamic and, so to speak, very maximalist: Springfield set a variety of records this year. He showed both the highest rates and the lowest rates in various aspects. The highest housing prices, the lowest interest rates, the lowest available home listings, and so on and so forth. But what does all this mean for us, what it may tell us and where do we go from here?
This year was quite a rollercoaster for real estate agents in Springfield (Effingham Country, Georgia, United States).
Firstly, we lacked homes for sale. As it may be obvious, it is of the greatest importance when we speak about the housing market – and it affects the whole thing. Secondly, we faced significant troubles regarding the supply chain, while the highest inflation rates over the past decades caused home values to soar dramatically. Those values ended up setting new record highs.
As a result, the average selling price of a house has increased by 14% since last year, and by 49% since 2016. At the same time, the number of days on the market has more than halved, falling from 63 days to 21 days. It’s quite a leap, frankly saying.
Indeed, it was a crazy year for realtors in Georgia overall. But to be able to think about the perspectives, we must first understand why did all this happen. First of all, we had to deal with almost record low-interest rates, almost record-high lumber prices, very low unemployment rates, and rapidly rising salaries. Those wages have risen, in turn, because of the shortage of workers. All these factors led both to problems with the house building process due to difficulties with material prices and the supply chain, and at the same time to increasing numbers of buyers with money.
And now the question arises: after all this madness, what to expect from 2022? Will the situation remains pretty the same, will it start stabilizing, or will it become even crazier than it was before? The answer is: all at once, but little by little. The key to understanding the whole situation is the issue of house prices. It seems that the values are not going to start falling in the near future. And of course, we are unlikely to see a sharp jump in record levels again, as eventually, supply chains will gradually stabilize, and house construction will resume at the right scale and pace. But they will keep increasing slowly, gradually stabilizing the rate. This is definitely good news for the owners because the prices will hold the bar.
However, there are some nuances. For example, the fact that we are now at the peak of inflation for the last 40 years, and the consequences of this do not pass quickly and without leaving a trace. We need time. The Federal Reserve (Fed) Chairman Jerome Powell made it clear that their two main goals are those given to them by Congress. These are maximum employment and price stability. The Fed in its struggle to stimulate the economy will cut down on bond purchases, ending buying them by the beginning of April. In the light of the strengthening labour market and elevated inflation pressures, the Federal Reserve has made a decision to speed up the reductions in asset purchases. All this is going to put a damper on inflation and rising house values, normalizing the market over the long run.
Even though this soaring inflation was largely affected by the supply chain issue, it is highly unlikely to be the only root cause. Normalization of the supply chain won’t be able to correct the whole inflation situation. The Federal Reserve expects an increase in interest rates. The cost of credit may rise if they increase the federal funds’ target rate. And if the interest rates rise just as the Fed expects them to, for us it will mean that loans will be becoming increasingly expensive. For all of us: business, consumers. As a result, the interest payments will cost us more. And we will be spending more on them. And eventually, this whole market will slow down. Just to understand it better, the increase of only one percent (from 3,5% to 4,5%) on the home loan of $300,000 in 30 years would result in an increase in the loan cost by $62,000.
This may be even too much information. So, how would we make a brief conclusion out of all this? 2022 will definitely contemplate a further growth of the house prices. But in the end, it will start slowing down and begin to normalize the rates. As we have already said, The Federal Reserve will raise to increase the federal funds’ target rate. As a result, interest rates will increase for all of us. This will significantly influence Springfield’s housing market.
Here everything is connected, and such a crazy year for the Springfield real estate market as 2021 will definitely be reminding of itself for a while. We will hear its echo from time to time in various aspects. However, the future is preparing for us a certain stabilization of the market. It is difficult to say how fast it will happen, but we will definitely move towards it. And over time, this turbulent but interesting period will come to a logical end.