Housing Market Forecast 2022: What Buyers & Sellers Can Expect

Home prices jumped nearly 20% across the nation in 2021. Will 2022 see the same trends for buyers and sellers? Here’s what we can expect according to the Housing Market Forecast 2022.

According to experts, the real estate market will continue to stay strong throughout the rest of the year. The housing market hit extreme levels in 2020 and 2021 in particular, but many expected it to cool as 2022 began. Instead, the market has stayed hot, and sellers remain in the driver’s seat.

Housing Market Forecast 2022: Home Prices Keep On Rising

Experts agree that home prices are likely to keep the upward trend throughout 2022, although perhaps not as steep an increase as 2021 brought. Zillow says home prices are expected to increase throughout the US by 17.3%, in line with the jump already obvious in Q1 of 2022.

This is good news for the homeowners who got into the market last year and saw a massive spike in their home equity and personal wealth through buying a home and making timely mortgage payments.

For first-time homebuyer hopefuls looking to get into a starter home, however, the market is still astronomically high in certain areas. Coming up with even a fractional down payment can be difficult for many, and some buyers are having to postpone their dreams and wait for the market to cool.

Rising home prices can both cause and be the result of bidding wars. Homebuyers begin to offer more and more for homes, causing prices to rise, causing the market to tighten even more. The result is a cycle of skyrocketing housing prices that is difficult to pull out of.

In certain high demand areas like the Pacific Northwest, homes have sold for $100,000 over asking price. Buyers are making all cash offers, and even adding incentives like stock options or cryptocurrency in efforts to come out on top.

Low Mortgage Interest Rates Spurred Purchases

One of the biggest reasons for the seller’s market was the continued low-rate environment. Even now, the rate for a 30-year fixed-rate mortgage is just passing 5%, which may keep some buyers eager in the tight market, trying to buy before they climb higher.

This increase in mortgage interest rates from last year’s low of around 2.65% has happened more quickly than anticip[ated. As late as January 2022, the Mortgage Bankers Association (MBA) said they expected the rate to reach 4% by the end of the year.

Freddie Mac forecast rates to average about 3.7% in 2022. Unless we see the current rate drop again, that projection is going to come in very low indeed. Nonetheless, rates haven’t been this high since the oughts, and they seem to be aimed for a steady increase.

This means buyers still have incentive to get into the market now, to take advantage of lower rates before they rise higher. The future for refinancing also looks less favorable month over month  However, demand among homebuyers continues to be strong, in part due to drastic inventory lows.

Inventory Continues to be Extremely Tight

The housing inventory continues to remain in a perpetual state of sparseness. There still aren’t enough homes available for sale to accommodate prospective  buyers, a situation that can be expected to continue over the course of 2022.

Certain areas, particularly in the Pacific Northwest, have an extremely low housing inventory. For instance, Seattle has hovered around only a few weeks worth of inventory, and King County is even tighter, at around one week of inventory. This is compared to the historical norm which is a 5-6 month supply.

The low inventory tightens supply, and demand drives up home prices. That’s why, even with mortgage rates going up, the chokehold on housing supply has failed to loosen as of yet. A slow down in the construction industry during the pandemic has helped contribute to low inventory.

With staggeringly high prices for materials like steel and lumber, and a sharp shortage in the labor force, new home builds have been slowed. In many areas, this caused new developments to stagnate, crunching the availability of housing nearly flat.

Until mortgage rates get high enough to tamp down demand and make renting seem like a more palatable alternative – which may not happen, given the dearth of rental housing as well –  inventory will stay tight and prices will stay high… and so far, demand is still driving the housing market train.

Demand For Housing Remains Strong

Demand for housing continues to rise, which is nothing new. The big push of investors into the real estate space has driven up rental rates, making more people seek to buy their own home. Even with high home prices, real estate is still the best possible investment as a hedge against inflation.

In addition, with the great resignation and subsequent great reshuffle, people are working remotely more than ever. This means a reevaluation of housing as a hybrid home and workspace, often for two breadwinners. This means homes with extra rooms and more square footage in the suburbs away from the former commute are in high demand.

Some countries like Canada have cracked down on foriegn investors buying up real estate, citing its impact on local housing, and cities have been fighting against investors who buy primarily to utilize housing for short-term rental, like AirBnB situations.

However, the United States is still extremely friendly to investors both foriegn and domestic, and laws against short-term rentals that take houses off the larger rental and sales market are slow to be enacted. This contributes to the shortages that are currently driving demand.

Sellers Stay On Top According to Housing Market Forecast 2022

All of this means that the housing market forecast 2022 stays firmly on the side of sellers for the immediate future. Sellers have a lot of advantages right now, and homebuyers need to be prepared to meet them.

The cash offer is one of the easiest ways to get a seller to move a buyer to the top of their short list. With a cash offer, the buyer can waive certain conditions on the condition of the home, meaning sellers don’t have to put a lot of money into fixing problems. Sellers also can close fast on homes with a cash buyer since there isn’t a lender involved.

Ways for buyers to compete with cash offers is to make an offer backed by an underwritten preapproval, or to come up with enough cash to buy the home then instantly mortgage it to get most of the cash back out again and free it up for other uses. Overall, buyers need strong support from lenders if they can’t make a cash offer, and may have to be flexible on contingencies to satisfy a seller.

Ready to Apply For a Mortgage?

If you’re ready to make a home purchase and need a mortgage to finance it, team up with a seasoned loan officer with a reputable mortgage today. Even before the home search begins, consider getting pre-approved for a mortgage to get the process started!