The Housing Market: What to Expect in 2022

After a record-breaking year, the housing market shows no sign of slowing as we enter 2022. Demand is high, especially in cities in where population growth has been particularly strong. Despite the high demand, inventory is still low. Prices skyrocketed as a result. While that may slow, it’s not happening yet. The median price for existing homes grew by 13.9% year over year in November, according to the National Association of Realtors. The Case-Shiller home price index , which accounts for same-property transactions but is slightly lagged, grew by 19.1% from October 2020 to October 2021. 

Trends in the housing market are difficult to reverse. Recent sales drive valuations for buyers and sellers. With prices growing rapidly, it’s unlikely that the growth will slow. Just over 42% of home sales close above the asking price in the four-week period ending on Dec. 26, 2021, compared to about 20% in the same period in 2019, according to real estate brokerage Redfin. 

A significant driver of housing demand are millennials - many of which are now first-time home-buyers. They have made up a large portion of homebuyers for the past few years but many have yet to reach their 30s, when owning a home becomes a larger priority. Many millennials preferred urban areas prior to the pandemic, but hybrid work schedules and flexible work-from-home policies have caused a shift. A significant portion of millennials moved to suburbia in hopes of finding a certain lifestyle and/or more affordable home values.

Additionally, those still renting are becoming more motivated to consider homeownership as apartment rents rise. CoStar’s market rent series for U.S. apartments grew by 11.2 percent in 2021 — the highest rate of growth in the 21-year series. While the forecast calls for slower growth over the next few years, rents generally rise annually (sometimes more frequently) and are not fixed like most mortgages.

Despite the demand, inventory remains historically low. The National Association of Realtors reported 2.1 months of inventory in November, a record low, and Redfin reports that 26 days was the median number of days on the market for existing homes sold in the four-week period ending on Dec. 26, 2021, compared to roughly 50 days in the same period in 2019. The pandemic made people reluctant to sell. With a growing number of cases due to the newest variant, inventory will likely remain limited through the early months of 2022. At the same time, home builders are facing higher material and labor costs, leading them to raise prices higher. Private residential construction spending grew by 16.3% year over year in November.

Despite the simple economic principles of supply and demand, home prices cannot continue to rise at the current rate. As affordability decreases, so will the buyer pool. We may see that as early as this month. Fewer households can afford to buy a home at today’s prices than earlier in the pandemic, when incomes were supported through various government programs (such as stimulus checks and enhanced unemployment benefits), and mortgage rates and housing prices were lower. Affordability has been buoyed by the historically low mortgage rates; However, rates are slowly rising and are expected to continue to do so in 2022. The Federal Reserve announced last year that it would accelerate its winding down of asset purchases, including mortgage-backed securities. In its Summary of Economic Projections , the median projection calls for three rate hikes over the year, with three more likely coming next year. This would lead to higher long-term rates, which mortgages are usually tied to.

Having a hard time buying in this market? At the Lana Rodriguez Group, we served over 300 families in 2021 despite the tough market conditions. We are prepared to help you buy your home in 2022. If you are ready for a consultation to buy or sell your home, contact Jordan Cassalia at 402-990-7189 or James Tabur at 508-265-6709 today!