Low inventory, low mortgage rates, and a global pandemic created the perfect storm for a high-priced competitive real estate market in 2021. The few available houses were quick to come and go from the real estate market and more often than not sold above asking price due to intense bidding wars.
Will the real estate market be similar to last year?
According to experts the answer is no, the real estate market will not continue at its current frenzied pace. But it won’t return to pre-pandemic levels either. The clearest indicator of a real estate market cooldown is the expectation of more consistent home values. During the second quarter of 2021, 67% of real estate agents believed that home values in their market would rise. This was a slight downward trend from the first quarter of 2021 when 73% of agents believed that home values in their marketplace would rise. The most recent polling of agents from 2021 Q3 shows that only 27% of agents believe home values in their market will rise and 59% believe home values in their market will stay level.
Should home buyers expect home prices to continue their upward trend?
Yes, but not as drastically compared to the 2021 housing market. According to most real estate forecasters, home prices will continue to rise in 2022, however not as rapidly as in 2021. Throughout 2021, a massive 54% of homes sold above their list price. The median sale price rose to $377,200 nationwide which was up 26.3% from the year prior. In 2022, experts forecast that homes will appreciate by 3.2%, a small increase compared to the 10.4% increase in February 2021.
What will contribute to the minor slowdown in rising home prices?
One factor is the increase in marketplace inventory. For decades, new home builds in the United States have been slower than the number of homes needed for homebuyers. In fact, the United States is facing a shortage of approximately 6.8 million housing units. The lack of inventory was exacerbated by the rapid halt to large amounts of new builds in 2020 due to pandemic related delays and lack of access to building materials.
The number of new home builds continued at a sluggish pace into 2021 as permits fell by 15%. The almost non-existent addition of new homes to the market wasn’t the only factor that spurred limited housing. For several years there has been an increase in home purchases due to the generation of millennials entering the real estate market. With little inventory, home buyers were limited to few options which heightened the competitive nature of the market. Some experts believe that it will take 2 to 3 years for inventory to normalize while others believe low inventory will be a problem for the next decade. In short, low inventory will remain a problem in 2022 and possibly longer.
One final contributing factor to the possible cooldown of the housing market in 2022 is the coming increase in mortgage rates.
The initial rush of homebuyers was due largely to the massive reduction of mortgage rates. Rates hit an all time low of 2.65% in January of 2021, which spurred additional buyers to purchase a home in order to lock in a low rate. But in 2022, mortgage rates will slowly climb, more than likely reaching close to 4% or rates similar to those seen prior to the pandemic.
The increase in mortgage rates coupled with even slight increases in home prices could restrict buying ability for thousands of first time homebuyers and middle class families. If that occurs, more home buyers could abandon their home search and further reduce home buying competition. Should buyers opt to hold off on a home purchase or should inventory become more available, then houses will stay on the market longer giving buyers more of a chance to shop around and negotiate with sellers.
In 2021, home buying frenzies often left buyers scrambling to make an offer so quickly that they were often bypassing home inspections or buying homes as is rather than take the chance of losing the home to another buyer. According to agents surveyed, 76% believe that homes in their market will have fewer bids. This means fewer bidding wars and in turn lower closing prices. Nationally, 62% of agents believe that bidding wars in their market are on the decline.
While 2021’s frenzied real estate market was brought about by low mortgage rates, low inventory, and high demand there is little chance that all three of these factors will return to normal any time soon. Continued rise in home prices and relatively low inventory will remain a factor for years to come. Overall, the real estate market in 2022 will be calmer and much less stressful for homebuyers to navigate, while still remaining a seller’s market.
Our Young Team agents can help you easily navigate the 2022 housing market. We are readily available for your inquiry.