Will the housing market improve in 2022?
The 2021 housing market has been a double-edged sword for home buyers.
Low rates and increased flexibility when working from home are putting many first-time buyers on the card. But limited stocks and skyrocketing prices made it harder to get housing.
But according to the experts, things could soon level off towards a “normalized” market.
Although interest rates are rising and house supply remains low, competition could ease and price hikes could slow down.
In short, 2022 should be a better market for many buyers.
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In this article (continue to …)
Housing market forecasts for 2022: Overview
We spoke to seven real estate and mortgage experts to get their projections for the housing market for 2022.
Most agree that the market will stay hot as it will take a long time to regain stocks. However, they do agree that competition and prices should ease somewhat.
Housing Demand and Demographics
Ask Rick Sharga, Executive Vice President of RealtyTrac, and he will tell you that the real estate market should continue its strong performance through 2022.
“Demand continues to be driven by low mortgage rates and demographics. Keep in mind that the largest cohort of millennials is approaching prime age for first-time home ownership, ”he says.
“The pandemic has also contributed to the recent home buying boom, in part due to the possibility of many employees now having to work from home and health reasons, which is encouraging city dwellers – mainly renters – to move to more spacious homes in areas with lower population densities . "
Potential for improvement
Paul Buege, President and COO of Inlanta Mortgage, also believes the market will remain strong. However, he expects that prices and demand will at least cool down somewhat in 2022.
“Positive indicators point to a cheaper housing market in 2022. The rapid pace of sales is showing the first signs of moderation, which is helping to increase the number of apartments available for sale, ”says Büge.
“With more houses in the market, prices should come down. This suggests that the balance between sellers and buyers will shift towards a normalized market over the next year. "
Watch out for rising interest rates
Chuck Biskobing, a real estate attorney at Cook & James, agrees that house price hikes should flatten over the next year. But he also warns that higher interest rates could lead to lower purchasing power for potential buyers.
"If inflation does not subside, the Fed and the market could hike rates faster than expected, which can hurt affordability," Biskobing said.
If your home purchase plans depend on today's low interest rates, this may be reason enough to continue your search now instead of waiting until 2022.
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House price predictions for 2022
Home prices rose at a record breaking point in 2021.
According to CoreLogic, prices rose more than 18% between August 2020 and August 2021.
This was "the largest annual increase in home prices in the 45-year history of the CoreLogic House Price Index" – and it followed the sharp year-over-year increases in July and June.
Unfortunately, property values are unlikely to stop rising or start falling anytime soon.
The good news, however, is that home price spikes could slow down, which could provide some relief for potential buyers.
Home price gains could slow to around 5%
“I expect home prices will continue to rise, largely due to the limited supply. However, the price increases will moderate over the next year to reflect household affordability, ”said Albert Lord, Founder and CEO of Lexerd Capital Management.
He notes that the national median list price in August was $ 380,000 – 16% higher than in 2020. "In 2022, I project home prices to rise 5%," says Lord.
Interestingly, one expert believes that home prices are only just catching up on the last decade.
"They're just getting to where they should be in a 20-year arc," believes John Hunt, Founder and Director of MarketNsight.
“The boom and bankruptcy of the Great Recession kept prices, especially for resale, low for a decade. Remember that the average price increase over the past 20 years has been 4.5%. We will return to this normal in 2022 and beyond. "
High demand means that the price trend will not reverse
Nik Shah, CEO of Home.LLC, expects home prices to cool slightly over the next year.
“Even so, we expect prices to continue to rise in 2022, fueled by millennia of demand, low interest rates and low housing stocks,” Shah continues.
Sharga points out that the work-from-home movement could continue to allow people to move from more expensive markets to smaller, cheaper areas, which would drive prices up dramatically in some of the smaller markets.
"On the flip side, we could see some price corrections in some of the higher priced markets like the Bay Area in California," he adds.
Residential inventory projections for 2022
As the real estate market moves towards a normalized pace, many industry experts believe the number of homes for sale will increase over the next year, especially as current homeowners are looking to move.
“The offer will continue to be supported by the growing stock of available new apartments that will go online next year,” explains Büge. He also expects some investors to start selling rental properties to take advantage of the high prices.
Home Qualified Founder Ralph DiBugnara agrees that the offering should improve a bit in 2022. However, he warns that the shortage of homes for sale will continue to be a problem.
The housing stock could improve somewhat in 2022, but is likely to remain a problem for years to come.
"According to Fannie Mae, we will still see nearly a 50 percent shortage of available homes to meet normal demand from buyers," he says. "I think it will take two to three years for the warehouse shortage to normalize again."
And don't forget that COVID continues to disrupt supply chains and labor shortages continue to pose challenges for builders.
"I think we'll be in need of housing for another decade," says Hunt. “We still have the problem that city and county governments don't allow higher density products, which allows affordable housing for workers.
“Also,” he adds, “boomers who should sell their homes and add to their inventory aren't moving – mainly because they have nowhere to go for lack of inventory. It's a vicious circle that I expect will last a very long time. "
Mortgage rate forecasts for 2022
Probably the most pressing question that professionals will be asked is predictable: Where will the benchmark interest rates for the 30-year fixed-rate mortgage end up next year?
DiBugnara believes we can expect relatively low interest rates, at least for a while.
“The national average interest rate is likely to stay around 3.25% for 2022. There isn't enough stability in the market to sustain a sharp rise in interest rates, ”he says.
Rick Sharga from RealtyTrac, on the other hand, predicts an average rate of 3.5% and a year-end rate of 3.75% by mid-2022.
"Mortgage rates are likely to rise for a number of reasons, including continued economic growth and higher 10-year US Treasury bond yields, which often directly affect 30-year fixed rate loan rates," Sharga says.
"Another important factor is the recent announcement by the Federal Reserve that it will reduce its monthly purchases of $ 40 billion in mortgage-related securities, which alone should drive up mortgage rates."
Lord agrees with this theory.
"Based on my economic analysis, I forecast a moderate rise in interest rates to 3.7% in 2022. Interest rates cannot rise dramatically in the current fiscal environment," adds Lord.
Others wouldn't be surprised if rates are even higher than these estimates.
“Look for 30 year fixed rates that move and then stay stable through a range of 3.75% to 4.25% through the end of 2022. With this leap too, remember that mortgage interest rates will remain at historically low levels, ”says Buege.
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Will the housing market collapse in 2022?
The experts all agree on one thing: do not expect a real estate market crash like 2008 in the next year.
"The economy has made a remarkable recovery from the pandemic-induced recession and is likely to have regained nearly 100 percent of the jobs lost during the downturn by the end of 2022," Sharga says.
Plus, many of the forces behind the 2008 crash just don't exist right now.
"Home price appreciation is driven by supply and demand – not speculation or poor lending practices like years ago – and household formation continues to grow as Generation Y and Generation Z grow up," he explains.
DiBugnara reminds us that loose credit and income guidelines to qualify for a mortgage, as well as an abundance of home stocks, were instrumental in the last real estate collapse 13 years ago.
"Today we have much stricter rules and guidelines for lending for home purchases and a shortage of homes for sale," says DiBugnara. "Due to the continued high demand and the continuing shortage of houses to buy, it would be very difficult to realize a market crash."
"I can imagine a scenario where the Fed is forced to hike rates faster than expected, but even if I do, I don't expect a market crash," he says.
Should you buy a home now or wait?
In-depth predictions are all well and good, but the ultimate question that many want an answer to is simple: should I buy a home now or wait?
"It depends on the unique circumstances of the buyer," says Lord.
Who should wait until 2022 to buy?
It may be best to wait if your finances are not in the best position to make a mortgage payment or secure a low interest rate.
"Perhaps you should consider renting until you can meet rule of thumb 30/30/3 for buying a house," continues Lord. This rule prescribes:
Your monthly mortgage payments should be no more than 30 percent of your household's gross income You should take out a 30 year mortgage You should aim for a fixed rate of around 3%
However, now is a good time for some people to buy despite the current challenges in the marketplace.
Who should buy a house now?
If you are planning to start a family and / or stay there for the next five to ten years without moving, now is a good time to get your own home and secure a preferred mortgage rate, Sharga emphasizes.
“For most families, home ownership is a good long-term strategy that leads to forced saving and the creation of intergenerational wealth. It also provides a stable environment for a family, ”he explains.
“But home ownership comes with a lot of financial responsibility. And there is also a possible short-term risk as property values can fluctuate and sometimes go down. I generally recommend that potential buyers act as soon as possible, but only if they are certain that they are financially ready. "
Focus on yourself rather than time the market
Most importantly, avoid trying to time the market perfectly.
"People put too much effort into playing the living system," says Biskobing. "But to guess when there are market movements and especially interest rate movements is stupid."
He continues, “Buying a home should be a practical decision based on where you are in your life financially and in your life path. Low interest rates speak in favor of buying now when you can afford it and have a steady job with a healthy income. "
Not sure whether to buy? A good next step is connecting with a mortgage lender.
Your credit advisor can guide you through your loan options, interest rates, and home purchase budget. Then you can make an informed decision whether to buy now or wait.
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