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omicronOmicron wasn’t an issue when I last wrote about the real estate market 2 weeks ago.  How it will affect the economy and correspondingly real estate is an unknown.

Omicron and the Real Estate Market

If you’ve been reading my blog, then you know how resilient residential real estate is.  Rock bottom interest rates combined with urban flight combined to fuel what already was a very strong market for Bergen County homes in 2020.  We can handle Omicron too because we’re in much better shape today.

Although we’re told that our vaccines aren’t as effective against Omicron, they’re still a good degree of protection.  When Covid hit last year, we didn’t have vaccines.  We also didn’t have the medicines to treat it like we do today.  Look, I’m not ridiculously optimistic but these are the facts.

Right now everyone is waiting for the scientists to release their findings on Omicron.  News reports say we should hear towards the end of this month or in January.  Meanwhile, everyone should get fully vaccinated.

Chairman Powell and Tapering

Fed Chairman Powell made the following points to Congress on Monday:  The economy is recovering well but has a long way to go, he’s worried about how Omicron will effect the economy and he’s keeping an aggressive tapering schedule to fight inflation.

Expect interest rates to rise on everything starting early next year.  Powell is going to be more aggressive than many people had previously expected.

In an article I wrote only 1 month ago, I pointed out why it was important to act sooner than later because of rising rates.  At that time I expected things to begin to slow down after the 1st half of the year.  Now it looks like in spite of rising rates, 2022 is going to be another very strong year.

Conforming Loan Limits

This is because we added more fuel on the fire with conforming loan limits.  Conforming loan limits were raised this week for 2022 from the present $548,250 to $647,200.  That’s huge and nearly a $100,000 increase.

Conforming loans are bought or guaranteed by Fannie Mae and Freddie Mac.  As a result, their interest rate is lower than what you’ll find elsewhere.  The Federal Housing Finance Agency regulates Fannie and Freddie.  Every year they adjust the conforming loan amount based on the average price of a US home.  Because conforming loans are backed by Fannie and Freddie, they’re the most sought after on the open market.

Additionally this influences FHA and VA loans too.  What this means is that if you’re buying a house with a conforming loan, you can now spend almost $100,000 more.  This is a pretty simple explanation but I’m sure you get the picture.

Inventory and Demand

Here we go again.  Nothing is changing because inventory stinks.  Tonight there are 1,005 Bergen County homes for sale according to the New Jersey MLS.  Once again we’re at half or less than where we should be.  Even if rates start to rise next year, they’re still going to be very low.

It’s not reasonable to expect rates to move up severely.  The Fed has already begun tapering and rates are now higher but not hugely so.  They’re just over 3% for most folks while they were around 2.8% a few months ago.  However, buying a house will cost you more in 2022 because rates and prices will be higher.

The bottom line on all of this is that we have to wait to see how things will work out with Omicron and the Fed isn’t changing course.


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