Last year’s perfect storm of supply constraints, low interest rates and record high demand sent home prices soaring. The median home price in the US reached a record high of $404,700 in the third quarter of 2021, up almost 20% from the same period in 2020, according to data from the US Department of Housing and Urban Development.
If you’re looking for relief in a crowded and competitive housing market in 2022, there may be hope for you. “As more residential real estate enters the market, intense multiple offerings will begin to wane,” said Lawrence Yun, chief economist at the National Association of Realtors. “House prices will continue to rise, but at a slower pace.”
Whether you’re about to buy your first home or you’re a real estate veteran, here are five real estate trends to watch out for in 2022.
1. Mortgage rates will continue to rise
After hitting a record low of 2.65% in January 2021, mortgage rates are on the rise. At the end of 2021, the average 30-year fixed-rate mortgage was 3.05%, according to Freddie Mac data.
Most economists expect rates to continue to rise moderately in 2022. Redfin chief economist Daryl Fairweather predicts that mortgage rates will rise to 3.6% by the end of 2022. . Prior to the Great Recession of 2008, mortgage rates never fell below 5%.
What does this mean for homebuyers? Assuming rates rise from 3% to 3.6%, a $300,000 loan would cost buyers an additional $100 per month.
2. Consumer demand and competition will decrease
2021 saw an unprecedented surge in consumer demand, due in part to inventory shortages, work-from-home trends and supply chain restrictions limiting new construction. But Fairweather sees a shift towards a less frothy market. “2022 will bring more balance to the housing market,” she says. “But don’t wait for a buyer’s market; just more choice, less madness, and slower price increases.”
Fairweather continues: “Low price increases are likely to discourage speculators from entering the market and allow more new buyers to have a chance to win a home.” This may be good news for new buyers, exhausted by the pace of price increases and disappointed by the numerous offers.
3. Home value growth to slow from record pace
Economists generally agree that skyrocketing house prices will slow significantly in 2022. It is noteworthy that most economists do not foresee a fall in prices, but only a slowdown in current trends.
A survey conducted by NAR, which included more than 20 experts in the field of economics and housing, showed that the average annual housing prices will increase by 5.7%, which is much less than in the previous year. “Overall, survey participants believe that next year we will see a normalization of the housing market and the economy as a whole,” said Lawrence Yun, chief economist at NAR. “The slowdown in price growth will be partly the result of higher interest rates by the Federal Reserve.”
If the forecasts for 2022 come true, buyers and sellers will be able to benefit from a more stable market, allowing for better planning and budgeting. In the latest Federal Reserve report, the share of real estate in household net worth increased by $1.4 trillion, mainly due to rising house prices. While rising home prices are good for home equity, annual payments due to increased principal, interest, taxes, and insurance can cause overall housing costs to become a larger share of a household’s budget.
4. Construction of new houses will increase
In 2021, the supply of building materials and labor shortages have left home builders unable to meet the demand for new construction. Mike Fratantoni, chief economist at the Mortgage Bankers Association, believes that the supply shortage will begin to ease in 2022, bringing additional stock to the market. “Home builders will do better in overcoming the current shortage of building materials and should be able to increase the pace of construction to meet significant buying demand,” he said.
Fratantoni noted that this is good news for homebuyers. He expects prices to slow down as more new homes hit the market. “This is good news for many potential buyers who are currently overpriced or are putting off making decisions due to low offer conditions and skyrocketing home prices.”
5. Real estate investors will continue to buy
As home prices and rents rose in 2021, real estate investors continued to be net buyers of single-family homes, according to Danielle Hale, chief economist at Realtor.com. “In 2022, investors will continue to see a solid return on their investment in the housing market,” she noted in her National Housing Outlook 2022. “2022 will be an excellent opportunity to generate high yields, given the strong demand and projected growth in rental prices.”
Most of the pandemic-era eviction protections have been lifted, and 2022 could provide a glimpse of a more typical return of the supply and demand economy in the rental market. By all accounts, real estate investment has experienced a significant boom during the pandemic, with REITs up nearly 29% last year.
Get ready to buy or sell in 2022
Regardless of trends and forecasts in the housing market, it is a good idea to be prepared before buying or selling a home. Daniel Hale recommends that buyers carefully consider their budget before starting their search for a home. Higher mortgage rates and rising prices will impact affordability and monthly payments, so sticking to a predetermined budget is a good idea.
Homeowners preparing to sell are in a good position in 2022. Housing prices are projected to continue to rise, albeit at a slower pace. As the market begins to stabilize, Hale notes that sellers need to be prepared for possible competition, but fair-priced homes will continue to sell quickly in many markets.
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