As we kick off a new year, we’re coming out of one that witnessed the housing market on fire. Demand raced past supply and drove prices higher and higher in a seller’s market where buyers competed like crazy for a limited number of available new homes.
Industry insiders say the housing market will cool a bit in 2022, but there’s no way it’s fizzling out. Whether you’re planning to buy or sell in the year ahead, here’s what you need to know about the 2022 forecast for the housing market.
Mortgage rates are rising.
If you’re sitting on the fence about jumping in the market, now may be the time to go for it. In early 2022, the mortgage rate was trending upward, and the National Association of Realtors (NAR) predicted it could be as high as 3.7% by the end of the year.
A combination of rising inflation, job creation, and activity by the Federal Reserve is contributing to the increasing rate. Some suspect it will help slow demand, which has soared in recent years. But it could also encourage buyers who’ve been holding back to go ahead and dive in before the rate gets out of reach.
Demand is still greater than supply.
In the first week of 2022, homes were selling in just 19 days. NAR says “There were 12 pending sales for every 10 new listings. Buyer competition has intensified since August [2021] when there were just 8 new pending sales for every 10 new listings.”
“Industry insiders tell Fortune that for the foreseeable future the housing market will see the supply side of the market simply outmatched by the demand side. The combination of a demographic wave of first-time millennial homebuyers and a decade of under-building is the culprit behind that mismatch.”
Experts are mixed on how long the foreseeable future is — that is, how long demand will stay far ahead of supply. But many agree that rising interest rates, new construction, relocation of current owners, and the potential for more foreclosures may combine to give supply a chance to make headway in the race to catch up with housing demand.
Home builder confidence is rebounding.
As contractors in the construction industry focus on building new homes, the industry can help ease the supply bottleneck.
New construction has a big part to play in helping supply catch up with demand, but with the supply chain challenges of the last few years, the construction industry has its work cut out for it.
There’s good news on the building front, though — home builder confidence is also trending upward! It’s been going up slightly every month since late 2021, and in spite of supply chain disruptions, builders seem to be gaining confidence that they’ll continue to move forward in 2022.
Construction practitioners at Hub International say resiliency among builders will be the differentiator: “Construction will continue its boom in 2022, but construction firms with the greatest resiliency against shortages will separate themselves from the competition.”
Extreme price growth should level out.
High demand is not expected to let up, but the double-digit price increases it fueled in 2020 and 2021 should settle out.
“August 2020 kicked off a year-long streak of double-digit home price growth. Looking ahead, with economic growth expected to sustain the purchasing power of eager homebuyers, we expect the median home sales price to continue to increase, rising 2.9% in 2022, a notably more moderate pace.”
– Realtor.com
Buyers who’ve hesitated because of extremely high prices may find that the more moderate rate increases in the year ahead will be a better fit for their budgets.
Work-from-home trends impact housing.
So many in the workforce spent their weekdays in makeshift home offices during the pandemic, and we still don’t have a clear idea how many of those will be getting back to the office.
In 2021, Forbes reported that work-from-home had become the norm, with fewer employees willing to go back in the office full time.
As you can imagine, the flexibility to work from anywhere impacted workers’ choices of where to live, and a lot of city dwellers took a chance on moving out of the city to the suburbs. Will those suburbanites return to the office and back to their city residences?
We don’t know! But we’ll be watching the market carefully to see what changes in the urban-rural housing landscape as we come out of the pandemic and get back to the office — or not! — in 2022.
First-time millennial home buyers impact the market.
Already mentioned as contributing to high demand, millennial home buyers are making their mark on the housing industry, and it doesn’t look like that’s changing anytime soon.
“Neither Zillow nor Goldman Sachs foresees the demographic wave of first-time millennial homebuyers letting up. We’re in the midst of the five-year period (between 2019 and 2023) in which the five largest millennial birth years (between 1989 and 1993) are hitting the all-important first-time home buying age of 30. According to their forecasts, there won’t be enough homes to satisfy all of that demand next year.”
– Lance Lambert, Fortune Magazine
Wondering what kind of house millennials are in the market for? Realtor.com spells it out for us. Millennials prefer three bedrooms with two-and-a-half baths in a suburban home where they can have a bigger backyard and plenty of room for pets.
They’re also coming to home buying in the WFH age and prefer having an office at home as well. Overall, they’d rather have a new or newly renovated space rather than an older home without modern updates.
In 2022, their preferences will play a strong role in the market.
If you’re considering buying or selling your home in 2022, be sure to reach out to the Gaskill Realty team for guidance as you weigh your options. Our professionals understand the ups and downs of the housing market and can help you make the best decision for you and your family.
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