It’s a new year, and many wonder what that means for the real estate market. Last year proved to be near record-breaking: pandemic-led movement out of cities and into the suburbs, low inventory, high demand, and a lack of affordable housing options. Together, this perfect storm caused home prices to soar.
Sellers were thrilled. Buyers were frustrated. And builders couldn’t keep up with demand.
Will the same hold true this year? We’re breaking down the housing market predictions for 2022.
Housing Market Predictions for 2022: More of the Same?
The housing market predictions for 2022 sound very similar to 2021. Prices will be high. Inventory will remain low. Homes will sell quickly, with bidding wars common across the nation. Affordable housing will continue to be scarce, and first-time homebuyers will struggle to get an offer accepted.
Though the real estate market will remain strong in 2022, experts say we can expect slower growth than we saw in 2021. Increased home prices, rising interest rates, and inflation may cause the market to cool a bit. However, all indications point to another excellent year for real estate agents and sellers – but another challenging year for buyers.
Continued High Demand and Inventory Shortage
Though we may see the inventory shortage ease a bit in 2022, demand will continue to outpace supply.
Consider the days on market average heading into the winter season. In December 2021, homes stayed on market for an average of 49 days. While that’s longer than the summer’s prime buying season – something that happens every year near the holidays – it’s nowhere near the average winter slowdown. Typically, December days on market would be between 85-100. That is, even with a holiday slowdown, homes are on the market about half as many days as average.
New construction isn’t keeping up with demand, either. Supply shortages and price increases have put many builders behind, creating a widening gap between demand and supply. There weren’t enough homes before the supply chain issues started, and these delays are only exacerbating the problem.
New Buyers Enter the Market
The low inventory problem isn’t about to get any better. Reports suggest that an estimated 45 million Millennials will be ready to purchase their first homes this year, placing an even greater strain on the market. Considering that many of these buyers will use first-time homebuyer financing, with less than 20% down, many will also face growing competition in the lower price tiers.
Just as in 2021, first-time buyers face stiff competition from investors and corporate buyers, many of whom make cash offers that are nearly impossible for sellers to refuse. This market is frustrating buyers, many of whom simply cannot afford to make a competitive offer on a home.
The changing workplace may make homebuying easier in some ways, however. With the rise in work-from-home technologies, more companies are allowing employees to work remotely. That permits many workers to live further away from city centers, giving some the option to purchase property in more affordable areas. This shift away from urban living may prove invaluable for first-time homebuyers who can live far away from the office without sacrificing a cut in pay.
The 2020/2021 housing market boomed in large part because of low interest rates. With mortgage rates at all-time lows, more people could afford to buy homes and refinance their existing loans. While the Federal Reserve kept interest rates low to encourage economic growth, that tactic may be coming to an end.
As inflation rises, the Fed is expected to raise interest rates as many as three times over the next year. A rise in the federal interest rate typically impacts mortgage rates, meaning we might see incremental increases in the next twelve months. While these increases aren’t expected to be drastic, they might be enough to discourage some homebuyers, therefore decreasing demand.
It’s unlikely that an interest rate increase will create a dramatic change, but housing market predictions suggest some relief in the overall buyer demand. That shift might be enough to give first-time buyers a better chance of snagging their dream home.
Continued Strong Sales
While most housing market predictions for 2022 point towards increases, there will be some stabilization in the market compared to 2021. Experts predict continued growth, but it’s expected to be more moderate than last year’s record-breaking increases.
Realtor.com predicts housing sales will increase about 6.6% over last year, with prices rising another 2.9%. If this holds true, home sales will hit a 16-year record high nationwide.
Housing prices remained high, even during the holidays. According to HousingWire, the median home price in America remains about 10% higher than this time last year. These high prices, combined with shorter on-market days and fewer instances of price reductions, indicate we can expect continued higher home prices in the coming year.
While no one can predict the future with 100% certainty, all evidence points to continued strong growth for the real estate market in 2022.