A Return to ‘Normal’? The State of Real Estate in 2022

Last year was one for the real estate history books. The pandemic helped usher in a buying frenzy that caused home prices to soar nationwide by a record 19.9% between August 2020 and August 2021.

However, there were signs in the fourth quarter that the red-hot housing market was beginning to simmer down. While this trend could be attributed to seasonality, it could also be a signal that the real estate run-up may have passed its peak.

So what’s ahead for the U.S. housing market in 2022?

MORTGAGE RATES WILL RISE

Most economists expect to see mortgage rates rise this year after hitting record lows in late 2020 and early 2021. Freddie Mac forecasts the 30-year fixed-rate mortgage will average 3.5% in 2022, up around 3% in 2021.The Mortgage Bankers Association predicts that rates will tick up to 4% by the end of the year.

What does it mean for you? Low mortgage rates can reduce your monthly payment and make homeownership more affordable. Fortunately, there’s still time to lock in a historically-low rate.

THE MARKET WILL BECOME MORE BALANCED

In 2021, we experienced one of the most competitive real estate markets ever. Fears about the virus and a shift to remote work triggered a huge uptick in demand.

This led to an extreme market imbalance that benefitted sellers and frustrated buyers. According to George Ratiu,“Prices and sellers reached for the moon [last] year. It looks like we are now about to move back to earth.”

Data from Realtor.com released in November showed that listing price reductions had more than doubled since February 2021. The average days on market has been slowly creeping up since June.

What’s causing this change in market dynamics? The real estate market typically slows down in the fall and winter. But economists also suspect a fundamental shift in supply and demand.

Demand is also predicted to wane slightly in the coming year. Rising mortgage rates and record-high prices have made homeownership unaffordable for a growing number of Americans. And in a recent Reuters poll, nearly 80% of property analysts said they expect housing affordability to worsen over the next several years.

What does it mean for you? If you struggled to buy a home last year, there may be some relief on the horizon. Increased supply and softening demand could make it easier to finally secure the home of your dreams.

HOME PRICES LIKELY TO KEEP CLIMBING, BUT SLOWER

Nationally, home prices rose an estimated 16.8% in 2021.8 But the average rate of appreciation is expected to slow down in 2022.

Experts disagree about how much more property values can continue to climb this year. Goldman Sachs predicts that home prices will rise by 13.5%, while Fannie Mae and Freddie Mac are forecasting a 7.9% and 7% rate of appreciation, respectively.

The National Association of Realtors predicts a 2.8% rate of appreciation for existing homes and 4.4% for new homes, while the Mortgage Bankers Association expects the average home price to decrease by 2.5% by the end of the year.

According to Hale, “With prices near all-time highs and mortgage rates expected to rise, we expect this slowdown in prices to continue.”

What does it mean for you? Even if home prices dip slightly (most economists expect them to rise) any savings are likely to be offset by higher mortgage rates. The good news is that decreased competition means more choices and less bidding wars.

RENTS WILL CONTINUE TO RISE

Along with home, gasoline, and used vehicle prices, rent prices rose dramatically last year. According to CoreLogic, in September, rents for single-family homes were up 10.2% nationally year over year. And economists at Realtor.com expect them to climb another 7.1% in 2022.

Real assets, like real estate, are often used as a hedge against inflation. That’s because property values typically rise with inflation. And when a homeowner takes out a mortgage, they lock in a set housing payment for the next 30 years.

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If you’re considering buying or selling a home in 2022, contact us now!