Sorry, Homebuyers: This Seller’s Market Is Sticking Around

From the CE Shop Team – January 17, 2022

As we wrapped up 2021, a year marked by soaring home prices and incredibly low inventory, many prospective homebuyers likely felt frustrated by the state of the ultra-hot housing market. 

Now, as we look into 2022, many might be wondering: Will the housing market finally calm down? Well, maybe — but it will remain a seller’s market, experts say.

Here’s what Realtor.com predicts: “…The market will continue slowing down from the frenzy seen in the spring [of 2021] when prices shot up to new heights. However, prices will stay high, inventory will remain tight, and mortgage rates will rise.

“The bottom line: Even as the market calms down further, it’s still expected to be challenging for buyers, especially those purchasing their first homes.”

2021: A Record-Breaking Year

Before we jump into 2022 predictions, let’s take a peek at what made 2021 so unusual. 

“The ongoing pandemic, including its seismic effect on the U.S. economy and the way Americans live and work, has made 2021’s housing market anything but typical,” said Daryl Fairweather, Redfin’s chief economist, in a blog post. 

“Remote work, low mortgage rates, a shortage of building materials, and wealth inequality that has allowed an influx of affluent Americans to buy vacation homes, to name just a few factors, have come together to create a historic year for real estate. Buyers paid more for homes, bought sooner than they planned, searched outside their hometowns, or all of the above. [2021’s] frenzied housing market has been one for the books — but it may become more balanced in 2022.”

Many real estate industry records were broken in 2021, Redfin says. For example, the median national home sale price was $386,000 in June — an all-time high and up 24.4% year-over-year — while at the same time, inventory hit an all-time low. That month, there were only 1.38 million homes for sale on a seasonally adjusted basis, down 23.0% year-over-year.

It was a truly unprecedented year for the real estate industry. Now, let’s take a look at what experts say we can expect from the housing market and the real estate industry as a whole in 2022. 

Mortgage Rates Will Continue to Rise

One thing that’s sure to affect the housing market in 2022 is rising mortgage rates. In 2020 and 2021, mortgage rates dropped to record-low levels as the federal government worked to revive the economy in the wake of COVID-19. Those rates are expected to start creeping back up this year.

The average 30-year fixed mortgage rate was 3.99% in 2017, 4.54% in 2018, and 3.94% in 2019, according to Freddie Mac. Rates plunged to 3.11% in 2020 and 2.96% in 2021. 

In 2022, mortgage rates will rise to an average of 3.30%, hitting around 3.60% by the end of the year, Realtor.com predicted.

That increase can make a big difference for prospective homebuyers, Realtor.com explained: “The difference of roughly a percentage point to 3.60% would result in about $157 extra tacked on to the monthly payment of a median-priced home of $380,000. That can total more than $56,500 over the life of a 30-year loan. (This assumes the buyers put down 20% and does not include property taxes, insurance costs, or homeowners association fees.)

“It’s also likely to result in homebuying becoming even more expensive. With home prices continuing to tick up a little and rates increasing, those purchasing a home with a mortgage will wind up shelling out more each month.”

Home Price Growth Will Slow, Inventory Remains Low

The good news for prospective homebuyers is that prices are expected to grow at a slower rate this year than they did in 2021.

Prices aren’t expected to drop — this isn’t a bubble, experts say — but they won’t be soaring quite as quickly in 2022.

Realtor.com predicted that they will increase by just 2.9% over the course of 2022, compared to about 12% over 2021.

“Price growth is expected to move back toward a normal range, but this is on top of recent high prices,” said Danielle Hale, Realtor.com’s chief economist. “So prices will [still] hit new highs.”

The bad news for homebuyers, though, is that the number of available homes is expected to remain low. Realtor.com predicted that home inventory will only increase by about 0.3%.

There are several reasons for that, one of which is that shortages of workers and materials have made building new homes more difficult, Realtor.com says. Investors are still eager to buy up single-family homes to turn them into rentals, too.

And on that note, rental prices are expected to continue to increase. Realtor.com predicted a 7.1% increase during 2022.

The takeaway is that we’re likely to be in a seller’s market for at least another year — but there is hope!

“The 2022 housing market will continue to be a seller’s market with fast-moving homes and rising prices,” Hale said. “But the competition should be a bit less intense than we’ve seen recently.”

What are your goals and plans for 2022? What do you hope to accomplish? Let us know in the comments!

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