Housing Market Predictions for 2022

Wednesday, December 8, 2021
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The housing markets of recent years have been full of surprises. With COVID-19 changing our work styles and lifestyles, many homeowners decided to upgrade, update and stay in their homes. Others discovered they needed more—or less—of a home in a location better matched to their life goals. Meanwhile, low-interest mortgages encouraged renters to buy that longed-for space, privacy and independence.

With so many looking but so few selling, home prices rose, and the just-right home became a pricey unicorn. Real estate agents spent time explaining terms like escalation clause and contingency waiver as would-be buyers signed time-stamped electronic documents. With a new year just around the corner, we can’t help but speculate where the 2022 housing market will go, so we’re taking a look at the trends and data that will matter most to you.

Will homes be available to buy?

Housing goliath Zillow surveyed more than 100 real estate experts and economists across the country for their third-quarter 2021 Home Price Expectations Survey. A key focal area was home inventories for 2022—not only how many homes they anticipated being on the market but also the source of those homes, such as new construction versus established homes.

  • About 40 percent of homes will come from existing homeowners selling their current home to buy another. This includes homeowners seeking to move up, scale down or relocate. Another 10 percent of existing homeowners may seek to simply sell and become renters. Plus, another 9 percent of homeowners are expected to list their second or vacation homes.

  • About 22 percent of homes will be new construction. COVID-19, 2021’s unstable lumber prices, persistent labor shortages, and shipping and supply chain challenges have made keeping up with demand difficult. Industry leaders stress that catching up will take time. Nevertheless, new construction has remained above pre-pandemic levels and is expected to increase as prices and sourcing stabilize.

  • Around 12 percent of anticipated inventory is expected to come from landlords or investors selling rental properties. While rent moratoriums and thin margins left many local landlords struggling, increasing property values have made selling attractive.

  • Foreclosures are expected to represent only about 5 percent of the market. In most cases, increased property values will enable many individuals to defer their missed payments, modify their loan or sell their property in an open market eager for listings.

As of the end of 2021’s third quarter, September’s newly listed housing inventory was actually nearly 4 percent lower than it was for September 2020. According to additional Norada Real Estate Investments figures, in September 2020, unsold inventory for existing single-family homes was at 2.9 months, but September 2021’s supply came in at just 2.5.

With winter months historically unpopular for listing homes, spring really holds the answer as to how many homeowners will decide to list their home, how many contractors will have completed turnkey new homes and what the supply of available homes will actually look like. With prices historically high, homeowners may be concerned whether they will be able to afford another home if they sell the one they have.

Statistics from the June 2021 Fannie Mae National Housing Survey demonstrate that 77 percent of respondents thought it was a good time to sell a home. They also showed that 88 percent of respondents were not concerned about job loss. As long as homeowners continue to perceive the economy and their jobs as stable, they will be more likely to take advantage of the increases in housing market values and list their homes in the spring.

Will home prices continue to rise?

A figure that really catches the eye from the Zillow Home Price Expectations Survey is the statement that “experts surveyed expect home prices nationwide to increase a cumulative 31.8% through 2025, the equivalent of an average annual rate of 5.7%—far below the current annual appreciation of about 17%.” Freddie Mac’s figures were a bit more modest, predicting that price increases would rise but do it more slowly—increasing by 5.3 percent in 2022 versus a predicted 12.1 percent for 2021.

The truth is that markets are localized. In thriving areas experiencing influxes of professional workers and tech industry development, home prices will continue to rise in response to demand. Of Realtor.com’s Top 10 Housing Markets for 2021, Boise, the Seattle-Tacoma-Bellvue area and the San Jose-Sunnyvale-Santa Clara area all had price growth approaching or exceeding 10 percent. Likewise, if homes or acreage properties in an area where people want to live are rare listings, they will likely continue to command top dollar within a market.

Will mortgage interest rates rise?

According to Forbes, the “decline in mortgage rates in 2020 dropped the monthly payment on a house by 12 percent.” That also meant that the mid-2021 average monthly mortgage payment of $1,275 on a 30-year fixed mortgage, for example, could buy more house than it could the previous year.

However, keeping those low rates depends on many things—especially inflation. The Federal Reserve has contained interest rates by buying mortgages wholesale and buying up treasury securities. The Federal Reserve continues to indicate that it will maintain its support in this way, monitoring the effects of the COVID-19 virus, employment and inflation on its “maximum employment and price stability goals.” However, they have also indicated that progress in these areas might warrant a “moderation in the pace of asset purchases.”

At September’s end, with inflation figures slightly more than double the Federal Reserve’s goal in place—4.2 percent versus 2—attention turned to employment figures. However, those were somewhat disappointing, with nonfarm payrolls increasing by less than half the anticipated number—194,000 versus 500,000—and unemployment at 4.8 percent. So, economists and financial strategists continue to anticipate an increase in interest rates at some point. Meanwhile, employment statistics may well keep interest rates where they are, with some economists projecting no change until mid to late 2022.

If the Federal Reserve does begin to raise rates, that will directly impact how much house buyers can afford. Some economists equate a 1-percent interest rate hike with as much as a 10-percent drop in housing prices. They are unlikely to want to introduce that kind of instability into an otherwise recovering market, so any increases are likely to be small, incremental, and responsive to their effects on inflation and employment.

Setting Sights on the New Year

In sum, while the 2022 housing market isn't expected to continue skyrocketing, it is expected to remain stable. Whether it remains a complete seller's market will depend on how many homeowners decide to put their house on any given area's market and how the Federal Reserve gauges key economic factors like inflation and employment to adjust interest rates.

Throughout it all, the mortgage specialists at La Cap will be prepared to answer your questions and help you find the best loan options for you to buy a home or refinance your existing home. Contact us today or visit our online Mortgage Center to start making your 2022 plans a reality.