Housing Market Predictions for 2022

Since the beginning of the pandemic, the housing market has been on an epic run. Low interest rates, surging demand, and record low inventory provided a tailwind for home prices to skyrocket. I “got in the game” with a move to the mortgage business in late 2020 after 8 years in the financial services industry. It’s been an extremely fulfilling and exciting experience thus far. The real estate market is intriguing to so many people because it is much more tangible than other markets. There is a thrill of touring a property and imagining its potential or driving by a “For Sale” sign and jumping to Zillow to look up the price.

In my time in the business, I’ve been answering the same question almost daily; “When are home prices going to come back down?”. I’ve spent much of the last year explaining how this environment is different from 2008, how homebuyers in this market are highly qualified, and how foreclosure numbers are muted because of how much equity homeowners have built-in.

In the spirit of looking forward, I’ve put together a couple of predictions for the Real Estate Market in 2022. Let me know what you think!

Home prices will continue to go up but at a slightly slower pace

The story of this market is one of supply vs demand. Inventory will remain lower as homeowners will continue to ask, “If I sell, where do I go?”. It’s a fair question for most people. They know their home values are up substantially, but the idea of moving into another home that may also be expensive can be daunting. I think there is a great opportunity for Realtors, Lenders, and Financial Advisors to provide value to clients around this. Most homeowners are looking for clarity on how a move might affect their overall financial plan.

Primary homebuying demand will continue to be carried by Millennials. This demographic accounts for almost 40% of the total population and are currently in prime homebuying age, between 26 and 41 years old. Members of the “Rent Generation”, are now forming households and have their sights set on homeownership.

The US Housing shortage will continue, with inventory remaining low for the foreseeable future. Not only are current homeowners more hesitant to sell, but homebuilders simply cannot keep pace with demand. The US Census reports that 12.3 million households were formed since 2012, but only 7 million new single-family homes were built. Solving the housing shortage is not the responsibility of homebuilders. Builders operate to remain profitable, something that has become more difficult due to inflation and pandemic-driven labor and supply chain issues.

Prediction: Home prices rise by 12-14%

What it means for buyers: Competition for single-family home purchases will remain fierce. Homebuyers aren’t going away. Buyers looking to secure a primary residence aren’t trying to time the purchase of a home the way they buy a stock. Even those in the “I’m waiting for prices to go down” camp, eventually face the reality that a home purchase provides them a sound investment, shelter, and accommodations for a growing family.

Mortgage Rates will rise, but not as much as the “doomsayers” might predict

The ultra-low-rate environment we’ve seen since 2020 has provided an amazing opportunity for homebuyers. Mortgage applications surged after the initial lockdowns in early 2020 as consumers locked in mortgages at historically low costs. These low rates played a major role in how quickly home prices increased, as buyers’ purchasing power hit all-time highs.

With as much good as low rates have done, they cannot last forever. Inflation in the US is topping out above 7% and the Federal Reserve has a responsibility to combat that, by raising rates. The last time inflation was above 7%, the Fed Funds Rate was 11.50%. Today it sits at 0.25%. The Federal Reserve has vowed to cut back on pandemic level bond purchases, and “aggressively” raise rates in 2022. I'd expect the first official rate hike in March.

I’m not buying the predictions for mortgage rates to rise much higher than 4%, though. Higher mortgage rates undoubtedly will impact the housing market. It will lower purchasing power and slow down prices appreciation. The Fed has proven over the past decade to do whatever it can to provide stability in the market.

I think they will use any excuse they can (COVID variants, unemployment, GDP growth, etc.) to continue providing support to the economy. My prediction is for rates to move up in 2022, topping out around 4%, before settling back down.

Prediction: 30yr Fixed Rate at 4.00% by year-end

What it means for buyers: Buying sooner, rather than later would be advised. If someone can buy early this year, they should be looking to move quickly before rates move any further. There is also may be an advantage to buying ahead of the highly anticipated spring market.

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Home Renovation boom continues – provides opportunities

In this ultra-competitive housing market, I expect more homeowners to choose home renovations and additions rather than risking their chances trying to “trade up” to a larger home.

Many homeowners will look to Real Estate market professionals to provide them with advice on which route makes the most sense. Renovations will continue to be time-consuming and expensive as contracts will struggle with reliable labor and the cost of materials.?

Homeowners should consider the costs of selling and buying new (realtor commissions, attorneys fees, a larger mortgage, etc.) and weigh that against the cost of a home renovation.

What it means: I think we see a surge in home renovations and improvement. As home prices and interest rates rise in 2022, more people will opt for home improvements than those that will “trade up”. I expect to see a rise in cash-out refinances and HELOCs, where homeowners are tapping into the newfound equity in their homes.

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People still matter

This is a cheesy one. It’s also not so much of a prediction, but a reminder to anyone working in the real estate field. The world we live in today loves to tell us how much different the world is and will become. Technology is undoubtedly changing the way we do everything. Consumers have access to more information than ever before. “Zillow Surfing” has become one of the more popular activities since the start of the pandemic and is now a “team sport”. See here.

Throughout history, technology has disrupted how people do business. Rather than fighting against change, those who embrace and work with technology will separate themselves from the competition.

The advice business isn’t going away. Clients choose a realtor, lender, attorney, financial advisor, etc.. because they know, like, and trust them. As we all know, real estate transactions can throw us for some wild twists and turns. Buyers and sellers want a team that is in their corner when it comes time to get the ball over the goal line.