How Is the Housing Market Right Now? 2022 Trends to Watch
Last year’s housing market was a roller coaster of record-high home prices, frenzied bidding wars, and extremely low inventory. The common assumption has been that the 2022 housing market will be much more stable with lower home price growth and more inventory to choose from. Currently, 98% of real estate agents say that it is still a seller’s market. While less frenzied and with fewer bidding wars than in 2021, the housing market will be fast-paced and favor sellers.
Home Prices Will Continue to Rise
The massive rise in home prices was swift and unexpected in 2021 with a record-breaking 18.8% increase. Though home prices will continue to rise in 2022, the increase will not be as dramatic. According to the National Association of Realtors, housing prices are expected to climb 5.7% in 2022. This is on track with the anticipated 4%-9% increase that over one-third of real estate agents expected. While the increase in home prices is much lower than the double-digit increase that was seen in 2021, it is still above the historically normal growth rates of 2%-3%.
Inventory Remains Low
What is driving the continued rise in home prices? A combination of inflation and continued buyer demand coupled with low inventory. Low inventory has been an issue within the United State for nearly two decades, however, it wasn’t until the COVID-19 pandemic further slowed housing construction that prices were affected nationwide. 75% of real estate agents believe that the housing inventory shortage will persist into 2022. Though the shortage is going to continue, there should be some relief as the year unfolds and supply shortages diminish. While supply may become more available, the cost of materials may not completely return to normal and prices might remain high. High construction costs could affect the price of new home builds and drive increased prices.
Mortgage Rates Will Increase
There is no doubt that the rock bottom mortgage rates that spurred buyers into the market last year are gone. In January of 2022, Freddie Mac reported the 30-year fixed-rate at 3.35%. Currently, the mortgage rate is sitting at 5.3%. The increase is more drastic than the original assumption that rates would hit a high of 4.5% by the end of 2022. It is anticipated that the increase in rates will slow the housing market and cool off rising home prices, however, that has yet to be seen. When asked, only 20% of real estate agents reported seeing buyers drop out of the housing market due to rising interest rates. Coincidentally, 22% of real estate agents reported seeing buyers rushing to purchase a home before rates move higher.
Historically, cash offers have been reserved for high-end luxury real estate transactions. However, 2021 saw mid-range homes purchased in all or partial cash offers at a much higher rate. As a whole, cash sales rose to 23% in 2021. With the ease and speed of an all-cash offer, sellers were more than happy to entertain all-cash offers over lender's backed offers. Because of this, buyers utilized retirement funds, home equity loans, and fintech to come up with the cash to win a competitive bidding war. Unfortunately, cash will continue to be the favorite form of payment and will continue into 2022.
Renovations Will Continue
Some homeowners who are unwilling or unable to step back into the housing market will instead upgrade their existing homes. This will continue the surge of home renovations that began during the height of the pandemic. This means there will be more homeowners searching for a contractor, building materials, and home furnishings in 2022. Additional home renovations will come from those who purchased a home during 2021. 80% of home buyers compromised on key home features in 2021 while 31% bought an older home. These homeowners will need to update their newly purchased homes to fit their lifestyles and needs.
Overall, the 2022 housing market has been relatively slower and more evenly paced than the 2021 market. However, there are still many areas where bidding wars are on the rise and inventory is shockingly low. 2022’s housing market may be a slightly cooler version of 2021, but it is in no way a normal housing market.