Housing Market Expectations for 2022

The national real estate market saw unprecedented growth in 2020 and 2021. But what are the housing marketing expectations for 2022? Should we expect more of these crazy seller’s market conditions with multiple offers, bidding wars, and homes selling in under a month? Or are we swinging to a buyer’s market? 

For licensed real estate agents, understanding changing market conditions is crucial. Your clients expect you to have the answers to some hard questions about the market. And to advise them properly, you need to know where the market is headed.   

We might not have a crystal ball, but we have lots of trending data that can give us valuable insight into the immediate future of the real estate market. Here are our housing market expectations for 2022.

Low Inventory of Homes for Sale

Inventory was low throughout 2021, meaning that there weren’t enough homes available to satisfy buyer demand. But January 2022 saw inventory drop 28.4% lower than January 2021. So it’s even harder for buyers to find a home right now.

Why are there so few homes for sale today? There are a few reasons:

  1. Aging in place. Back in the day, seniors would sell their family homes to move into retirement communities or move in with their grown children. Today, 90% of those aged 50 and over want to stay in their homes. This means fewer homes come on the market.

  2. Low levels of construction. Since the Great Recession of 2009, home builders have been overly cautious, building only as many units as they’re sure they can sell immediately. This is because many builders were left with units they couldn’t sell when the market was flooded with sub-prime mortgage foreclosures. Even while the market recovered, developers' nerves did not. And now that they would love to start building again, the supply chain disruptions caused by COVID are interrupting their operations. 

  3. Zoning laws. To add to the builders’ troubles, zoning laws are so restrictive in many parts of the country that they can’t build where buyers need homes most. Take California, for example. Around two-thirds of all residential property in the state is zoned single-family, meaning only one unit could be built on the lot. Without being able to build multi-family housing (like duplexes and condos), it’s harder to increase the housing supply. 

  4. Investors. Investors purchased a record 18% of all homes sold during the third quarter of 2021. With so many investors in the market, homes are snapped up before individual buyers have a chance at them. 

With all these factors hitting at the same time, we’re seeing a perfect low-inventory storm. The good news for buyers is that people are working to mitigate some of these issues.

We don’t want to keep people from aging in place if they can do so safely. But suppliers and governments are working to repair the COVID-era supply chain to make it possible to build more homes. And local governments are voting to change zoning laws and make it easier for builders to start more quickly. California, for example, recently passed laws to allow additional units to be built on single-family lots and streamline the permitting process.

At this point, there are no large-scale restrictions on investors purchasing properties, but conversations have started. Some groups are calling on policy-makers to limit real estate purchases by large investors like BlackRock.

Stabilizing Demand

Since the COVID-19 outbreak, we’ve seen high buyer demand. But this demand is starting to taper slightly.

One reason for the decreasing interest in home buying is the recent increase in interest rates (as well as the plan to increase rates further through the year). As of January 2022, rates are sitting at 3.45%, up from 2.74% one year ago. While this is still a historically low interest rate, the increase does mean less buying power for today’s buyers. 

Another reason is buyer fatigue. Some buyers have simply had enough. They’re tired of looking at homes, making offers, and losing to higher bids or cash buyers. But perhaps the biggest reason for lower buyer demand is that some buyers have simply been priced out of the market at this point.

"The most prevalent thing I am seeing in this market right now is that young and lower-income [households] are being priced out of the market both in home sales and rentals," said April Tsotsos, a Realtor in the Port Charlotte, Florida area. "If they are even able to find a home in their price range to purchase, they are unable to compete with corporate and privately-funded cash buyers in our market."

Don’t get us wrong; buyer demand is expected to remain high through 2022. Just not at the excessively high levels we’ve seen since the summer of 2020. 

Slower Rates of Growth

So we know inventory is still low and buyer demand is cooling slightly. What does this mean for home value growth in 2022?

In all likelihood, rates are still going up in 2022. Just not as fast as they had been climbing in 2021.

Nationwide, year-over-year median home prices rose by 12.7% from December 2019 to December 2020. From December 2020 to December 2021, they were up an additional 15.1%. This level of growth is entirely unsustainable, especially when wages increases are not keeping up with home prices. So the market will not be able to support these double-digit growth figures for much longer.

But you don’t need to worry about a sudden market crash or drop in values. Unlike the housing bubble of the 2000s, which was fueled by risky lending practices, today’s market is the result of legitimate supply and demand. So rather than imploding, the market will slowly correct itself to more sustainable levels of growth. We expect 2022 to bring the beginning of this market correction. Home values will continue to grow, but they will be at a more manageable pace than we saw in 2020 or 2021. 

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