The pandemic ignited a home-buying frenzy as the decade-long housing shortage converged with historically-low mortgage rates, shifting workplace dynamics and new opportunities for young buyers to pursue their first homes. As we near the end of 2021, here’s a look at the expectations of real estate experts for 2022.
Danielle Hale, Realtor.com chief economist: We expect a whirlwind 2022 for the housing market. Home sales are expected to increase another 6.6% and home prices to rise another 2.9% on top of 2021 highs. A gradual uptick in mortgage rates will make affordability a top consideration for home buyers, especially the 45 million Millennials aged 26 to 35 who are at prime first-time home buyer age. Demand from these young households will keep the market competitive and fast-paced despite a small uptick in housing inventory as builders continue to ramp up production, increasing single-family starts by 5% in 2022.
Although affordability challenges will come from rising prices and mortgage rates, rising rents, which are projected to increase 7.1% will be a strong motivator for many hopeful first-time buyers. On top of this, all home shoppers will have some advantages that stem from a competitive jobs market. Incomes are projected to increase by 3.3% and with many employers looking to attract and retain talent without impacting costs, we expect workplace flexibility will continue. This should free-up potential home buyers to broaden their search parameters to include the suburbs and in some cases even completely new, less pricey metro areas.
This means we expect the suburbs and markets that offer good real estate value to continue to attract an outsized share of attention. While this has reduced the relative affordability of many such areas, they still offer a lower price per square foot and thus opportunity for buyers. On the whole, the housing market will remain competitive, but buyers will have new ways to confront these challenges.
Bob Pinnegar, president and CEO of the National Apartment Association: Housing affordability will remain a key issue as the nation’s rental housing market tries to stabilize from lingering pandemic and housing stock issues. Supply chain delays and continued inflation will also impact every facet of the industry, from property managers to renters to owners.
While the pandemic brought an increased focus on housing affordability at the national level, affordability has been a key concern throughout the industry for years and will continue to be an area of focus in 2022. Demand for apartment and single-family homes continues to outpace supply, which ultimately drives competition and hurts housing affordability. Attention throughout the industry and at all levels of government will be focused on remedies to provide quality and affordable housing.
It’s also likely that we’ll see increased regulatory efforts directed at the rental housing market after a tumultuous time during the pandemic. Though highly disputed by economists nationwide, rent control policies are gaining steam and will continue to be pushed as a quick solution under the guise of preserving affordable housing. Other industry regulations are also being examined, fueled by the expiration of pandemic-induced eviction moratoria. These policies must be watched closely, as they achieve the opposite of the intended effect, driving up housing costs as available housing units leave the market and competition increases.
Daryl Fairweather, chief economist for Redfin: After two years of unprecedented uncertainty in the housing market, we’re expecting 2022 to be just as unpredictable. We expect 30-year-fixed mortgage rates to slowly rise from around 3% to around 3.6 by the end of the year, mostly attributed to the pandemic subsiding and inflation continuing to linger.
By late fall, high mortgage rates, paired with already high housing prices, will likely slow annual price growth to roughly 3%. This low price growth will likely discourage speculators from entering the market, giving first-time home buyers a better chance at securing a home.
In 2022, we also predict home buyers will start considering climate change as a major factor in their home-buying decisions, as natural disasters and extreme weather events continue to increase in frequency. Home sellers will also likely make significant investments in climate-change resilient home features in order to appeal to climate-conscious home buyers.
Jarred Kessler, founder and CEO of EasyKnock: As the country begins to move towards a new post-pandemic normal, I expect lingering economic uncertainty will continue to drive the unpredictable housing market in 2022. We’re in the midst of historically low interest rates that are driving a hot housing market, but what goes up, must come down, and I expect the housing market will slow after the new year as interest rates will undoubtedly go up.
However, in 2022, we will continue to see new home construction not meet the continued demand as the United States deals with ongoing supply chain issues and labor shortages. This will lead to fewer new homes on the market, which means even with increasing interest rates, we may still continue to see record-high sale prices. All of this perpetuates the need for alternative methods of buying and selling and supports the growth of companies like EasyKnock that allow American homeowners to convert the equity they’ve worked hard to build.
Anita Kramer, senior vice president for the ULI Center for Real Estate Economics and Capital Markets: The Urban Land Institute’s Emerging Trends in Real Estate 2022 report notes rising home prices and rents will bring about a renewed focus on the country’s affordability crisis in 2022. As millions of potential home buyers are priced out of a growing number of markets, prices continue to rise faster than wages, and down payments are out of reach for many. Many must remain in the rental market but face similar price increases. Further, costs of for-sale and rental housing are rising much faster in secondary and tertiary markets as people search for more affordable housing.
Studies show that declining affordability inhibits migration and thus slows job growth because qualified workers cannot move to where the jobs are. Thus, the beneficiaries of improving housing affordability extend far beyond the immediate recipients by increasing overall economic growth and prosperity.
Frederick Warburg Peters, CEO of Warburg Realty in New York City: Increasing interest rates will most likely impact the national real estate market more than any other factor during the early months of 2022. While there is no reason to anticipate a falling market, the interest rate rise will have a psychological impact in dampening any market exuberance. That, combined with the return of sensible practice to the iBuying market after the spectacular Zillow flameout, should keep prices at current levels in most markets during the first and second quarters.
The luxury market may behave somewhat differently. Even with the Omicron variant on everyone’s mind, foreign money has turned again towards the United States. This will help underpin a market already flush with cash from the huge gains in business and the stock markets throughout 2021. These buyers, always less impacted by mortgage rates than the buyers of more modest properties, will keep this market strong through the foreseeable future, perhaps even showing a little escalation in prices.
Sue Yannaccone, chief executive officer and president of Realogy Franchise Group: Real estate is entering a new era. The pandemic-fueled frenzy we saw over the last 24 months is giving way to a new kind of real estate market – one that will be driven by solid and sustainable demand we haven’t seen in over a decade. Prior to 2020, there had been around 5 to 5.5 million resale home transactions a year. The market was effectively stuck at a stagnant level of homes and home buyer demand. The pandemic and lifestyle changes that followed, such as remote and hybrid work styles that have opened up the freedom to live and work from anywhere, have helped unleash new dynamics in the market. And we’re starting to see it in action already: 2020 had 5.6 million resale transactions, while 2021 is shaping up to have around 6 million resale home transactions, according to the National Association of Realtors.
While the real estate roller coaster of 2020 and 2021 may appear to be returning to normal seasonality as we approach 2022, demand is not waning. The changes to Americans’ working and living behavior are also compounded by demographic shifts giving way to a new generation of homebuyers. Making up the largest share of new home buyers in the U.S. and entering their 30s and 40s at a growing rate, Millennials are finally getting off the sidelines of the housing market.
In 2022, we may very well experience the year of the Millennial home buyer, with Gen Z (already in their early 20s) close behind. With remote and hybrid work decisions freeing these populations from the constraint of a daily commute and an increasing demand in home office space, we expect to see this demographic evolution continue to fuel the market. As we enter this period of sustained demand, inventory will be the metric to watch.
Nick Bailey, president of RE/MAX, LLC: Home buyers should find the coming months to be more advantageous than any time in 2021. While sellers remain in a very strong position, price stabilization and the continuation of competitive interest rates may bring some welcome relief to buyers in the new year. Inventory is and likely will remain a challenge for some time as shortages in labor and materials, as well as general supply chain challenges, delay new construction. Last year was a strong year for sales and 2022 should continue to be. As the market begins to rebalance and buyers who were sitting on the fence decide to get in the game, the value of a skilled, full-time real estate professional will be even more evident.
Much of the real estate industry could be digitized even before social distancing spurred a radical uptake in digitization. The push toward modernization will continue at lightning speed, yet while more homes are found online and virtual home tours take the place of open houses, the emotional investment and industry-understanding that agents can provide for a complex transaction will remain crucial to the home-buying and selling process.
Brent Fielder, executive vice president of Proper Title: We expect to see incremental growth in housing sales in 2022, but a significant drop in refinancing activity as interest rates rise. The real estate-owned (REO) market—also called lender-owned property—will increase as Covid mortgage bailouts expire.
The home-buying experience will proceed with its digital transformation as the real estate brokerage and title industries continue to embrace technology. Electronic options for closings and sales opportunities will become more commonplace for everyday use, which meets the demands of Gen Z and Millennial home buyers. Top priorities for real estate agents and attorneys will be establishing strong customer connections for referral transactions and staying on top of evolving market and industry trends.
Lawrence Yun, chief economist for the National Association of Realtors: Mortgage rates will drift higher as the Fed scales back the purchase of the mortgage-backed securities and raises short-term interest rates, which are likely to hit 3.7% by the year-end 2022 on a 30-year rate after hovering at 3% for most of 2021.
Home sales will notch lower by 2% in 2022, principally because of higher mortgage rates. Home sales will not crash thanks to job gains, investor demand and the work-from-home reshuffle in residential location choice.
Inventory will finally increase due to more home construction, the ending of the mortgage forbearance program and the rise in Covid-related deaths among the elderly. Softer housing demand with more supply will calm the home price growth. Home prices will only rise 3% to 5% nationally.
Skylar Olsen, principal economist for Tomo: Housing in 2022 should be calmer, but don’t expect the full return to sanity. Anyone who explored buying or selling a home this shopping season experienced something intense. We just didn’t know how hot housing markets could get until new record lows on interest rates moved up first-time buyer timelines.
With many parents pulling out their equity to get down payments for their adult children or second home buyers using up portfolio collateral to buy homes away from struggling urban cores, and investors rushing in to diversify portfolios away from over-valued stock markets and capitalize on the potential long-run demand shift that of remote work might bring, the housing market has been anything but typical or normal.
So what will be different about next year? Well, investor buyers are fast, early movers and interest rates should start to rise. Both these things imply some pressure could come off. The urgency to buy now for the financial opportunity of historically low rates or the arbitrage opportunity from remote work will be less. However, there will still be plenty of buyers hoping to hit life’s milestones in a new home.
The pre-pandemic fundamentals were indicative of a demographic wave crashing onto too few homes. The majority of forecasts expect home prices to continue to rise next year, and we agree. Housing will be slower, but only compared to the fastest market in history.
Tom Rossiter, CEO of RESAAS: Prior to Covid, using technology was seen by many real estate agents as a “nice to have.” Now it’s simply a requirement to do business. We expect real estate technology to further evolve in 2022, and for both sellers and buyers to use digital tools even more during the entire home-buying process – from listing to interacting with agents to closing deals.
Patterns we are observing from our exclusive real estate data show us that heightened buyer migration is still not over. The Great Relocation of 2020, where people realized remote work unlocked where they call home, set new records. We are still seeing elevated levels of referrals for buyers looking to move out of state and predict this will continue into the new year as well.
Robert Dietz, senior vice president and chief economist for the National Association of Home Builders: With housing demand solid and existing home inventory too low, home construction should continue at a strong pace in 2022, according to NAHB forecasts. Single-family builder confidence at the end of 2021 is high, registering a level of 83 on the NAHB/Wells Fargo Housing Market Index. We expect a slower growth rate for home building in 2022, but the level of single-family housing starts will be about 25% higher than it was in 2019, pre-Covid.
Nonetheless, supply-side headwinds are limiting the pace of construction and increasing costs. In particular, ongoing supply chain challenges, insufficient lumber production, higher lumber tariffs and delays for deliveries of just about all types of building materials have frustrated builders and buyers. Construction costs are up 19% year-over-year. In 2022, some of these supply chain issues will ease, but the skilled labor shortage will grow worse. The construction industry needs to add 740,000 workers a year to account for industry growth and yearly retirements from the sector per a new NAHB estimate for the Home Builders Institute.
Higher construction costs and an expectation of rising interest rates, as the Federal Reserve tightens monetary policy on inflation concerns, will result in additional declines for housing affordability. Policymakers should act to reduce the cost of land development and home construction. Communities that successfully do so will win the competition for population growth and business expansion.
Additionally, multifamily construction should continue to expand, given ongoing growth in rents. Suburban apartment construction in 2020 and much of 2021 made up for some weakness in urban core areas, but now most geographies are seeing gains for multifamily development. In addition, the single-family built-for-rent segment should continue to expand after experiencing the best quarter on record during the third quarter of 2021. And given wealth gains for homeowners due to rising home values, the remodeling sector will realize strong growth in 2022 as homeowners seek to add space, improve energy efficiency and increase resiliency of an aging existing housing stock.
M. Ryan Gorman, CEO of Coldwell Banker Real Estate: Fundamental demand from home buyers remains strong as Americans continue to dream of homeownership, and those dreams may be more likely to become reality due to partial remote work widening search areas to positively impact affordability, even with price increases.
In addition, during the tail end of 2021, foreign buyer and investor interest in U.S. real estate and mortgage assets was heightened. If that continues, demand could escalate further, hopefully coaxing more existing inventory onto the market, though new construction will likely continue to face supply chain delays. As funds from around the world seek safe, stable and valuable investment opportunities, U.S. real estate remains among the most attractive and largest asset classes for investors and families alike. With continuation of these trends, the seller’s market that we’ve seen this year may continue into 2022.
Robert Morgenstern, principal of Canvas Property Group: Bidding wars, once primarily the purview of condos and co-ops, reared itself in the 2021 leasing season and show no sign of stopping in 2022.
In the summer and early fall of 2021, we began to see an unprecedented spike in rental demand, and with this, a tightening of the market. This will all just intensify in 2022 due to a lack of new development—thanks to a lack of tax incentives on multifamily assets—and zero new supply of units through the system of deregulation, along with a demand-side increase as young employees return to work while working in a hybrid model. These drivers will create a tailwind to New York City’s free-market rent growth and the rental unit bidding wars will intensify.
The residential rental market in general will see increased demand, most intensely in primarily residential areas where the retail and restaurant scenes are thriving. Throughout the nearly 2,000 apartments and 60 assets we own and manage in New York City, we saw the market explode in direct correlation to the nightlife scene in that submarket. Neighborhoods like the East Village, Lower East Side and Williamsburg all did best. The type of building and amenity offerings were fairly irrelevant from our perspective.
Carla Ferreira, director of onsite development and principal at The Aurora Highlands: We anticipate a strong 2022 for the Colorado market as lot availability widens, the economy stabilizes further and more product is offered. Home sales should increase as buyers are feeling urgency with expected interest rate increases coupled with rising prices in 2022.
The trend of Millennials moving to the suburbs will continue as will the moderate increase in new home prices. Homeowners are looking towards master-planned communities that offer home buyers amenities, room to grow and home offices.
Approximately 75% of new home starts are currently larger communities. We do anticipate a 10% to 12% increase for starts and closing, however there will continue to be a lag in closing times due to supplier and labor challenges.
Laura Ellis, president of residential sales and executive vice president of Chicago-based Baird & Warner: Underlying fundamentals point to another robust year in 2022 with inventory as the wild card. Competitive bids are already slowing down so that may entice many potential buyers who avoided entering the market last year because they were intimidated by multiple offer situations.
If low inventory persists, it could be a market spoiler. As of November 2021, the number of active listings was down nationally more than 55% compared to November 2019 and will continue to be the most significant limiting factor. There’s a lot of pent-up demand from buyers, but sellers will continue to be hesitant in listing their property if they aren’t confident about finding – and closing – on their next home.
Oisin Hanrahan, CEO of Angi: In 2021, we saw a significant shift in the way people think about their homes. The value of home has a new meaning, shifting from thinking about our homes first for its fiscal value or as an investment, to now where our home’s many uses are the primary focus.
For the second year, homeowners have told us that their main reason for taking on projects around the home is to better meet their needs. Before the pandemic, return on investment was the primary motivation. This is a huge shift and something we know will continue throughout 2022, especially as people continue to spend more time at home. As these trends play out further and projects that were put on hold due to Covid disruptions resume, we’ll see the demand for home projects increase to meet the newfound time and focus on the home.
We also continued to see Millennials step into homeownership. As the first digital native home-buying cohort, they expect solutions on demand, on their phones and a simple, easy experience. Their expectations will shape and impact home services in the year ahead, including a strong desire for end-to-end services that align with consumer expectations.
Frank Nothaft, chief economist for CoreLogic: With the Federal Reserve gradually tapering its supportive monetary policy, look for 30-year mortgage rates to average about one-half of a percentage point higher in 2022, or about 3.4%. We expect to see a moderation in buyer demand as the erosion in affordability takes a toll and additional for-sale inventory comes on the market.
With more supply from new construction and existing owners relocating, home sales are expected to rise to the largest number since 2006. With less demand, we expect homes listed for sale will be on the market a bit longer with fewer competing bidders, which should moderate price growth. The CoreLogic Home Price Index Forecast has the annual average rise in the national index slowing from 15% in 2021 to 7% in 2022. Similarly, rent growth on single-family homes reached the highest ever recorded in the CoreLogic Single-Family Rent Index in 2021 and is projected to slow as additional rentals enter the market.
While we expect home-purchase originations to rise, the higher mortgage rates will reduce refinance originations and alter its composition. Refinance originations will likely have a much larger cash-out share in 2022 with slightly lower average credit scores and lengthening of the average loan term. Employment and income growth should continue to keep new delinquencies at a very low level. But the end of foreclosure moratoria and the CARES Act forbearance program will likely result in an uptick in distressed sales in 2022, but this increase will be small.
2022 should be a strong year for housing. Look for mortgage rates to rise but remain historically very low, home sales to grow to a 16-year high, price and rent growth to slow, refinance to shift toward cash-out and delinquency rates to remain low albeit with an uptick in distressed sales.
Matthew Vernon, retail and centralized lending executive for Bank of America: Prices throughout 2021 have risen substantially, and competition has been hotter than ever given the low supply of homes. At the same time, rent prices have sped past projected estimates based on pre-pandemic trends, making homeownership and steady monthly mortgage payments even more attractive, particularly for Millennial buyers.
This demographic is in its peak home-buying years and 52% of younger generations say the importance of building equity has become more important recently. We expect to see a continued increase in home-buying interest and competition while mortgage rates remain low. We’ll also see some homeowners wanting to trade up to larger homes. As the Federal Reserve may raise interest rates next year, those already in the position to look into larger homes will aim to tap into lower rates while they can next year.
Jeff Benach, principal of Chicago-based Lexington Homes: Overall, the housing market should stay pretty hot through 2022, including markets like Chicago. As of now, all indicators point that sales will likely continue at a fast clip until the supply chain issues settle down and until we get completely past Covid-19, both of which should occur in 2022 when the pandemic will be considered behind us by most people. Inflation often helps housing, and it certainly doesn’t seem to have hurt it so far. As for new-home sales specifically, expect to see the continuation of Millennials as the demographic leading the charge in 2022.
Home designs will also continue to be influenced by the pandemic – likely well beyond 2022 – as buyers demand more from their homes, such as multiple offices or remote work/study spaces and multifunctional kitchens that can do it all.
Ben Miller, co-founder and CEO of Fundrise: Some pundits, alarmed by slowing sales in the fourth quarter, are forecasting doom for the residential real estate market next year. But the doomsayers miss a key point: seasonality. Historically, housing prices regularly move almost 7% to 8% between the lows of winter and the highs of spring. Yet every winter, outsiders mistake seasonal swing for secular decline. We expect to see housing prices surge in spring 2022. And beyond that, we expect continuing strength in the single-family rental market, which has soared over the past 18 months.
More crucial to the expected surge in home prices: the excess positive pressure on the economy. The U.S. annual inflation rate is above 6%. Unemployment claims are at their lowest in 52 years. Interest rates are still at historic lows. At least $1 trillion and as much as $3 trillion of fiscal stimulus is underway. And, according to Moody’s Analytics, Americans have $2.5 trillion in overall excess savings from the pandemic era. That buys a lot of houses. So, buckle up.
Susan Wachter, the Albert Sussman professor of real estate at The Wharton School of the University of Pennsylvania: After a year of home prices rising at a blistering 18% rate, housing prices are expected to decelerate to single-digit rates across major metropolitan markets. Fed actions to contain inflation, now running at a 40-year high, will cause, in the consensus forecast, a small (0.5%) uptick in mortgage rates in 2021. This will moderate demand.
If inflation persists or heats up further, a liquidity retreat and a negative tail event with an interest rate spike are possible, although not likely, for 2022. The likely outcome is that 2022 will be a banner year for housing, with single-family starts at over 1 million, and easing inventory constraints. Nonetheless, demand and supply imbalances will persist and high construction costs, due to persistent labor, materials and land shortages, will generate increases in home prices, although at lower rates than in 2021.
Population mobility will remain low, but expect continued movement to lower-cost metros with outdoor amenities and employment growth. Texas, Florida, Arizona and North Carolina will continue to outpace the nation in new home sales.
For the nation as a whole, expect homeownership headwinds. As Millennials, who are in their prime home-buying years, postpone homeownership, multifamily demand and rents will rise, adding to a challenging economy of scarcity, even amid strong economic growth and the prospect of a pandemic recovery.
Dawn Pfaff, president and founder of My State MLS: We are forecasting that prices will continue to rise in 2022 but at a more moderate pace than 2021. Going into 2022, demand won’t be as high, and supply is going to be a bit better than 2021. Mortgage rates will grow but still be a reasonable value for home buyers. Inventory of available properties will remain low, but home builders are ramping up, and many sellers are itching to sell at their new higher prices.
We expect rents to outpace home price growth because demand is still greater than supply. First-time home buyers will continue to struggle because of higher prices and the supply problem. Bottom line, 2022 is still going to be a seller’s market, just not as frenetic as 2021.
Gary Beasley, CEO and co-founder of Roofstock: Historically, real estate has been a powerful inflation hedge as owners can raise rents to keep pace with rising costs. I feel pretty confident that we are at, or near, peak inflation at 6.8% in November. We’ll see it moderate meaningfully over the course of 2022 as we get past the easy comparisons to some of the worst Covid-influenced periods of 2020 and steadily work our way through supply chain disruptions.
Modest interest rate increases and Fed tapering should also serve to cool an economy that is currently running a bit hot, leading to somewhat reduced demand bringing down inflationary pressures. Next year, I expect yield-seeking investors to trade out of fixed income into real estate as bonds become increasingly unattractive and Fed rate increases become more likely to tap the brakes on the economy
Sean Grzebin, head of consumer originations, Chase Home Lending: According to a recent survey of first-time home buyers that Chase conducted this year, 60% said they were likely to buy their home in the next year, and 70% have already made lifestyle changes in order to work toward achieving that goal. This shows us that Americans continue to aspire for homeownership, that they still view home buying as a smart decision for building wealth, and as we head into 2022, that they’re serious about reaching their goals to own a home.
Additionally, the latest generation of buyers will be more diverse than ever before. According to a 2021 report by the Urban Institute, net growth in the number of homeowners in the next 20 years will be entirely among people of color, especially Hispanic homeowners. Between 2020 and 2040, there will be 6.9 million net new homeowner households, a 9% increase. Hispanic homeowners are expected to grow by 4.8 million and Black homeowners by 1.2 million.
Despite home-buying optimism, there are still barriers that exist to prevent people—particularly Black and Latin/Hispanic communities—from accessing and sustaining homeownership. Many of these families may be home buyer-ready today, but the challenge is making sure they know that—and ensuring that we have the home financing products and services that fit the needs of this new set of home buyers.
One of the new ways Chase is helping to educate home buyers is through our Beginner to Buyer podcast launched this year. The podcast aims to break down barriers to homeownership by hosting real conversations with real people, helping to answer the questions you always wondered, but were maybe too afraid to ask.
Sean Black, co-founder and CEO of Knock: Home shoppers who put off their plans to buy in 2021 will have the benefit of more inventory as remote work provides the flexibility to live farther from the office and sellers continue to get off the sidelines. Rising home prices will combine with higher interest rates, making affordability more of a challenge, especially for first-time home buyers struggling to come up with a down payment.
The good news for consumers is that the focus on simplifying the real estate transaction will continue to gain steam. In the future, buying and selling homes will be more like renting an Airbnb with the upside of building equity rather than the complicated, painstaking process it is today.
Kevin Quinn, senior vice president of retail lending at First Internet Bank: If the past 12 months have taught us anything, it’s impossible to predict the future. This past year was a challenging one for home buyers, resulting from a mix of low rates, fierce bidding wars and limited inventory. But I believe we may start to see the market normalize to a degree in the coming year. Mortgage rates and home prices will continue to uptick, but not at record rates. However, if inflation continues, we may see the Federal Reserve begin to increase mortgage rates, impacting prospective buyers.
Jacob Channel, senior economic analyst for LendingTree: Barring a major resurgence of Covid-19, we expect higher mortgage rates as well as a boost in new construction driven by improvements made in global supply chains to result in a somewhat calmer housing market in 2022. While home prices aren’t showing signs of a significant decline, price growth likely won’t be as drastic as it has been since the start of the pandemic. Instead, the double-digit, year-over-year, growth that we’ve seen in many parts of the country through 2020 and 2021, will be replaced with more manageable single-digit growth.
For buyers, higher rates—which are on track to end up somewhere near 4% by the end of the year—may be a cause for concern, but it isn’t all bad news. In fact, with less competition and more housing available, some buyers may have an easier time navigating the housing market, even if they’re paying more for a loan.
From a homeowner’s perspective, selling a house in 2022 might prove to be a bit more of a challenge than in the past two years, but even so, the average homeowner shouldn’t expect to be underwater on a home they can’t get off of their hands.
Ultimately, even if the housing market isn’t as hot in 2022, it’s unlikely to crash anytime soon. As a result, both new buyers and current homeowners shouldn’t worry too much about what the new year holds in store.
Patrick Boyaggi, CEO of Own Up: Covid-19 remains a wild card, and the uncertainty it causes will likely put the housing market into flux in ways we can’t expect. Here’s what we do know: Rates are at an all-time low, which heavily increased buying power in 2021. I anticipate that rates will rise in 2022, but it won’t be enough to meaningfully slow down the purchase market. More likely, the rise in prices due to the supply and demand imbalance will have a bigger impact than rising rates will.
When homes become too expensive, consumers are either priced out or more inclined to hold back until the market levels out. This will limit the total purchase market. Until then, we expect to see an increase in the prevalence of all-cash offers, especially in highly competitive markets.
Given that the highly competitive housing market is here to stay, at least into the first half of 2022, it’s increasingly important for consumers to shop around for their mortgage. The average range for a loan scenario is about 0.5% for every borrower–that’s the difference of 30k over the course of the loan for the average homebuyer. Even if rates rise slightly in 2022, shopping around can significantly increase a prospective homebuyer’s chances that they’ll receive the lowest rate out there.
Milford Adams, Denver Metro Association of Realtors 2022 chairman of the board of directors: 2022 will continue to be an indisputable seller’s market around the nation with higher appraisal gaps as supply chain will continue to be a major issue that the world has to combat. We’re hearing reports that we need 100 million homes to stabilize the market and, frankly, that’s not going to happen anytime soon.
In fact, here in Denver, we’re suspecting that the market will stay this way longer than the three years originally predicted, but closer to five years before we see any stability nationwide. Expect to see people getting certifications to move into their homes despite the fact they may not have cabinets for six months or a garage door as it sits on the dock somewhere dwindling with supply chain disruption. As buyers get out there in a world where inventory remains short, they need to be persistent, be patient and have a plan.
Steve Hart, CEO of Property Management Inc.: With the hot real estate market in 2021, we saw several investment property owners selling or liquidating their investment portfolios. They want to sell when the market is high. It’s still a hot market right now because the mortgage rates are low, and there are a lot of people buying. In 2022, I predict it will level out and become more of a normalized market. But even though it will slow down, it’s not going to stop.
The market will still be strong, but the hot pace of sales will slow down, which should increase the number of homes on the market. When that number of homes on the market increases, we won’t see the bidding wars or craziness that we’ve seen in the last year or two. There will still be a high demand for homes on the market, and pricing will still continue to grow, just not at the same rates that it has been.
Todd Teta, chief product officer of ATTOM: Among the many key forces that drive the housing market, it’s reasonable to predict that home prices will keep going up by small amounts over the rest of this year and into early 2022. While things usually slow down in the fall and winter, with interest rates still super low and no sign of demand dropping off amid a tight supply of homes for sale, upward pressure on prices is likely to continue for the short term. Prices have spiked this year by double-digit rates every quarter, so it would take a significant change to reverse that course.
Beyond that, there are many questions hanging over the market, including the path of interest rates, the stock market, the pandemic and the economy, as well as the continued willingness of home buyers to keep paying soaring prices. If things keep going as they are, prices should continue to rise, especially with interest rates so low and the stock market providing the resources for hefty down payments. But if we get another Covid wave—it looks like that’s starting to happen—and the number of households unscathed by the pandemic wave taps out, or the stock market falls from its record highs, that could certainly tamp things down.
Other factors that come into play include inflation, price affordability and foreclosures. Home affordability has worsened recently and foreclosures are on the rise now that lenders are again free to go after homeowners far behind on mortgage payments. Major ownership costs on the typical home nationwide still consume just 25% of the average wage, but are pushing closer to the 28% level that lenders often use as a benchmark for giving mortgages. And, with foreclosure activity up in November by 94% from a year earlier, further increases could lead to a flood of empty homes on the market, which would raise supply and lessen the bidding wars we are seeing throughout the country.
Ann Gray, newly elected president of RICS: While there was a lot of residential market disruption in 2021, it didn’t appear to have affected values or new starts in urban markets. The sector stabilized quickly and is poised to continue its momentum in 2022, based on what we’re seeing from investors, buyers and our professionals. Our numbers are showing that investors and capital providers are very optimistic at least through Q2. They’re also telling us now is a good time to have property to sell, with the overall economic recovery still in a sharp upturn and demand expected to stay high.
The housing shortage, exacerbated by high barriers to entry, is likely to benefit from enthusiasm across the board from sellers and lenders, but especially from investors. Fast-growing Sun Belt and Mountain West cities like Phoenix, Denver and Austin are showing huge demand from young buyers and renters pursuing jobs at relocated tech and service sector employers. The single-family rental market will also continue to see activity for the same reason, as younger families make quality-of-life decisions. 2022 will see continued high volumes of activity along with new starts in non-housing sectors that support population growth.
David R. O’Reilly, CEO of The Howard Hughes Corporation: Over half of the people in the United States will consider moving in the next two years as people continue to prioritize time with family, cost and quality of living and a desire for safe and clean neighborhoods.
Businesses will increasingly follow today’s educated workforce as they migrate out of the major metropolitan areas and establish their presence in the smaller cities and communities that exemplify today’s new urban ideal—the best of an amenity-rich, walkable urban environment integrated into expansive natural settings to provide the best of both worlds.
As the migration continues, we will see issues of affordable housing and traffic will garner even more focus as people consider where and how they want to live. We predict that in 2022, Millennials and the transient labor force will demand even greater options for housing and community connectivity to meet the exponentially growing demand.
James McGrath, co-founder of Yoreevo: Existing home sales are at levels not seen since the housing bubble, while existing home inventory is near the lows. It’s very hard for the amount of sales to remain at record levels when there isn’t much to sell. Even in the face of comparable inventory, we can anticipate the amount of sales to decline because a lot of demand was pulled forward, but pared with low supply, it seems all but certain that the number of transactions will decline. With this, buyers can be more patient. There should be less competition from buyers and more houses to choose from as we normalize on both. That doesn’t mean prices will decline—there is still strong demand for housing—but the market shouldn’t be as frenzied as it has been over the last 18 months.
With Covid receding in most of the country, offices are reopening and the work-from-home trend will wane. It will certainly settle at a higher level than pre-Covid, but we’re going to see fewer buyers who need a room to be a dedicated office. This will result in more purchases of smaller homes, or conversely, fewer purchases of larger homes. If you’re a potential seller with lots of space, whether that be lots of bedrooms, a big backyard, a guest house, etc., you should list sooner rather than later. If buyers are more willing to purchase smaller homes, we could see median or average home prices decline because of mix. If smaller homes increase as a percentage of total sales, that will drag down reported prices even if prices for smaller homes are increasing as well as prices for larger homes. Buyers should be aware that the market isn’t as weak as indicated and still move aggressively on any property they love.
Everyone is saying mortgage rates are going to increase because inflation is increasing, however, this is not how interest rates generally and mortgage rates specifically work. Mortgage rates mirror the 10-year U.S. Treasury rate, which is at the same levels as September and March. In other words, the world’s largest professional investors disagree with Joe Broker. With this, buyers can be more patient and don’t need to rush a transaction because interest rates are supposed to go up.
Jeff Allen, president of CubiCasa: The supply of homes available for sale will remain extremely limited in 2022 compared to historical standards, which means houses will continue to go under contract quickly and at strong prices. We shouldn’t expect another year of 20+% home price appreciation by any means, but supply and demand dynamics will continue to tilt in favor of the seller for now.
Don’t expect a massive home price correction downwards in the near future. First-time home buyers will still face headwinds as higher prices lead to higher down payment requirements, and fast bidding wars during the listing process.
The process to get a home under contract may be fast, but unfortunately the process of closing a purchase mortgage still takes entirely too long, driven largely by the lengthy, expensive and uncertain appraisal process. The FHFA’s announcement that they’ll be starting to offer consumers the much faster and frictionless Desktop Appraisal on GSE loans in early 2022 will be an important turning point in appraisal modernization. And it should drive exciting new efforts to collect robust property data upfront in the listing process, in order to facilitate a smoother buying experience on the mortgage side.
Gary Feldman, founder of the Gary Feldman Group at Aspen Snowmass Sotheby’s International Realty: In 2022, Aspen real estate will see unprecedented demand combined with shrinking inventory, especially at the luxury end of the market. Sellers will continue to expect high sale prices, and will likely see record sales. Buyers will continue to pay historically high prices as opportunities become scarce.
Market-wide, we’ll continue to see the price per square foot increase breaching the $4,000 price per square foot level for truly special properties. In the past year, 75 single-family homes sold for more than $10 million in Aspen, whereas only 17 single-family homes are currently listed for over $10 million. As inventory dwindles, days on market will continue to shorten with many deals being struck prior to listing in the MLS.
Ryan McLaughlin, CEO of the Northern Virginia Association of Realtors: Next year will again be big and almost as boisterous as 2021. We expect to see home sales continuing to grow in Northern Virginia with demand exceeding supply. Based on what we saw this year, we know that even with typical seasonal fluctuations, the market outpaced five-year averages with sales and listings.
In 2022, we expect home prices in the NVAR region—right outside the nation’s capital—will rise, but at a more moderate pace than seen in the past 12 to 18 months. The 2022 market may be a bit cooler than 2021 but will still be a strong year for Realtors and their clients.
By year end, we will not be surprised with mortgage rates pushing the 4% mark – still well below historical patterns but possibly edging some potential buyers out of the market. However, the recent announcement by the FHFA raising the GSE conforming loan limits will help offset mortgage rate increases.
Andreis Bergeron, head of brokerage operations at Awning.com: Historically, real estate is a cyclical environment, and buyers should expect a cooldown from the hyper-competitive market we saw in the spring and summer. While I expect velocity and prices to slow down in the coming month, macroeconomic forces such as higher inflation, historically low interest rates and an undersupply of housing inventory will continue to drive prices higher.
Additionally, Freddie Mac House Price Index is an industry-accepted standard for home price growth, and over the past year, we have seen a 20% price growth. The index forecasts a slowdown to 4.4% price growth for 2022. While this is drastically lower than growth in 2021, buyers will still see competition.
Lastly, in Texas during the summer, Awning.com clients were constantly needing to put offers in 7% to 15% over the asking price to win deals. It was not uncommon to be competing against 10 to 20 buyers. Over the past few months, this has changed. While we are certainly not shifting to a buyer’s market, buyers should expect a cooldown in winter. This should allow home buyers with less appetizing terms like longer inspection periods and FHA loans to have a chance at winning the deal.
Judy Zeder, real estate agent with The Jills Zeder Group at Coldwell Banker Realty: I’m bullish on real estate for 2022. With all the changes and disruption in almost every market area, from supply issues and challenges in the hospitality and service businesses, to volatility in securities markets and cryptocurrency, the one constant in growth and stability has been in real estate.
Changes caused by the pandemic and its residual impact on the workplace prompted pivotal decisions by CEOs and executives to move their businesses and their personal residences to South Florida. The drivers of those decisions included no state or local income tax, no estate tax, good homestead laws and overall desirability of the area. Those factors remain constant, are still attractive from both a personal and business standpoint, and support a positive outlook on real estate in South Florida.
Phillippe Lord, CEO of Meritage Homes: We expect to see continuing strength in home-buying demand especially in the affordable market, as a result of demographic trends in home-buying activity from Millennials and Baby Boomers as well as continuing remote work opportunities. However, housing supply headwinds from ongoing supply chain constraints will impact inventory at least for the first part of the year.
We also anticipate an uptick in mortgage interest rates—although we do not expect them to increase dramatically or abruptly—while incomes rise and the economy strengthens. The new FHA loan limits that will become effective January 2022 will allow for additional first-time buyer participation across the U.S.
John Heck, senior advisor of lending solutions at Capacity: The biggest change for mortgage and insurance companies is to understand that “data” has become their product. All innovative solutions will need to solve for that fact.
Zero-knowledge proof will expedite the entire process, significantly eliminate many operational expenses, massively reduce fraud and, ultimately, will facilitate the manufacturing, delivery and actual model performance of mortgage assets.
However, the biggest innovative changes will be driven by the non-agency qualified mortgages, non-qualified mortgages and jumbo asset managers. They will be focused on removing many non-data centric redundancies from the secondary and capital markets, and this transformation will drive massive changes to the front end of the industry. Zero-knowledge proof or true data will replace the “presumption” of true data.
Paul Ryll, certified residential appraiser and owner of Oscar Mike Mobile Appraisals: Homeowners will make lifestyle changes as we continue to navigate a post-pandemic reality, many of which will center around hybrid and remote work trends as well as the desire to spend more time with family. These realities will create a strong market that swings in favor of the seller. The need for digital platforms and tools will be greater than ever, and much of the industry’s ability to keep up with demand will rely on the newest apps and offerings.
Specifically as it relates to home appraisals, desktop appraisals will become permanently accepted, which was announced by the Federal Housing Finance Agency in October. Better access to relevant data will allow desktops to be weighted more than they were in the past, with government-sponsored enterprises and lenders now considering these types of reports credible.
Interestingly, desktops will also help minimize forms of racial bias since the real estate agent, appraiser and other parties do not have to meet in person, which could help address an unfortunate reality still occurring within the industry. With the right data collection tools and overall acceptance by industry professionals, real estate will greatly benefit from the increased use of technology in 2022.
Robert Heck, vice president of mortgage at Morty: The existing mortgage ecosystem will continue evolving to make mortgages more accessible to consumers, and offer financial products beyond the typical government-backed loans. This is a positive thing, as many home buyers who could qualify for financing might not meet traditional requirements.
There are many potential examples of profiles that fit into this category, but they include workers in the gig economy, contract workers and those with inconsistent employment histories. We saw this during this year through initiatives such as Fannie Mae’s decision to include rent payment history within the underwriting process, and expect to see similar moves to promote accessibility next year.
Going through the home-buying process can be overwhelming and complicated, even for the most educated of buyers. There’s potential for consumer manipulation at every step, as people might be coerced into specific loan types, loan amounts or steered towards specific brokers, which isn’t just harmful to the consumer but also illegal. Next year, I expect to see additional regulatory crackdown on processes that are perceived to be detrimental to home buyers or to the market at large.
Jeremy Sopko, CEO of Nations Lending: 2022 will be an enigma for the housing market. Traditionally, we have seen continued 6-10% growth of purchases year over year. And while there’s no shortage of industry folks singing the usual chorus of slightly higher rates and a still-hot market next year, I think what we’ll actually see is exactly the opposite. Interest rates are going to remain artificially low thanks to the uncertainty around the pandemic and new variants. But rather than this keeping the market juiced, it’s going to cool off quickly because we’re staring down the barrel of a huge affordability problem.
Younger Americans are fueling the housing surge and have been for a while. I’ve written about how this demographic was breathing new life into previously ignored markets, specifically Rust Belt cities and the surrounding burbs. But when wages increase 5, 6, 7% while home values surge 30%, milk costs 6 bucks a gallon, and you can’t fill your gas tank for less than $50, you’ve got a major affordability problem.
Who cares about a 3% interest rate when you have to pay $50K over asking price for a modest starter home in some markets? We already know this is becoming a reality. Markets like Tucson, Dallas and Albuquerque are the canaries in the coal mine. Ordinarily, they’re surging right now. But buyers are actually backing out of deals because they’re scared of the inflation they’re seeing. Point is, expect the market to cool even if interest rates remain historically low.
Evan Blau, chair of the agency lending and affordable housing practice at Cassin & Cassin LLP: There will be a continued emphasis on construction, rehabilitation and preservation in the affordable housing space. Much has been said about the affordable housing crisis pre-pandemic and if anything, our new reality has exacerbated many of our known challenges in this area. Migrating populations, increasing costs of materials and labor have contributed to further supply and demand housing issues on a national level.
In order to combat this crisis, Federal Housing Finance Agency, the federal regulatory agency tasked with overseeing Fannie Mae and Freddie Mac, has mandated $78 billion of lending volume each, whereby 50% of originations need to be “missioned driven” business, much of which will be affordable housing transactions. This is one of many initiatives being led at the federal level to help spur affordable housing preservation and rehabilitation.
Bill Packer, executive vice president and chief operations officer of American Financial Resources: There are several factors at play related to housing prices in 2022, and it is not clear which one may predominate. On the one hand, family formation, the trend away from renting in the city to buying in suburban and rural areas, supply-demand imbalance and asset inflation cause homes to appreciate. On the other hand, as home prices and interest rates rise, affordability will increasingly be a challenge, and as prices rise, more homeowners will choose to list their homes for sale—all of which will tamp down home price appreciation.
From a technology perspective, there has been an acceleration of the adoption of digital tools for the closing process. We expect these trends to continue and increasingly expect the further proliferation of digital tools during the processing of the loans.
Key mortgage technology trends to watch in 2022 include expanded use of automated verification of employment, income and asset systems; further expansion of asset technologies to validate income and rental payment history; increased adoption of automation valuation systems, which will lead to a rise in appraisal waivers (except in the FHA, VA and USDA space); the initial steps for conventional loans to utilize remote inspection tools; widespread adoption of “keep the borrower informed” integrated telephony/loan origination technology systems; and further expansion of e-closing technologies, including increased use of e-notes and remote closings.
Sherry Chris, President and CEO of Realogy Expansion Brands: Lifestyle is leading the way in buyers’ decision-making process and will continue into the new year and beyond. The remote and hybrid workplace revolution is reshaping our industry and society. Homeowners across the country will continue to embrace their new realities and get inspired to reimagine where they reside in order to live their best life – a life no longer constrained by proximity to in-person job opportunities.
Our homes are more than a structure. They are where both the big and small moments in our lives take place. Buyers want spaces where they can spend quality time with their family, a home office that helps them be productive when working from home and outdoor living amenities that extend the living area of the home. The intense competition we’ve seen has redefined “dream home” for many, and we’ll see more and more buyers prioritizing a lifestyle market, compromising on home features in order to live in that area. The surge of out-of-market moves is in part due to destination lifestyle markets being more accessible than ever, from the beach to the mountains to sought-after planned communities.
Sebastian Drapac, chief operating officer at Drapac Capital Partners: For all the talk about labor and material supply chain delays, the most significant disruption that will shape the housing market in 2022 will be the availability of land. We have watched 10 years of anemic and scattered lot development nationally, and the gestation period to develop raw land into buildable lots, which only seems to take longer and longer, means we cannot simply turn on the tap to capture outsized demand. This is “bad” news for affordability and home builder margins, but “good” news for landowners and developers.
2022 will also mark the coming out party for build-to-rent (BTR), a mature and pragmatic evolution of single-family rental (SFR). It has been extraordinary to watch the formation of a new asset class over the last 18 months. This product is destined to become a major investment grade product type and is the final frontier (currently 2% institutionally owned), particularly when compared to multifamily (32%). The favorable supply-demand dynamics of single-family housing investment will turbocharge the capital flooding into the space, especially given uncertainty in some competing real estate food groups.
In many cases, cap rate compression and rental growth have led build-to-rent groups to outbid for-sale home builders for land positions, and if these levers are pulled further, the impacts on the traditional housing model as we know it could be seismic. Recent rapid pricing growth and affordability concerns grab headlines, but the U.S. housing market is fragmented, and some places are still relatively affordable in real terms, which explains the outperformance of the Sunbelt. Generally, we believe home price and rent growth have runway, and our prediction is a hard-hitting economics lesson of what happens when acute supply shortage meets pent up — and accelerating — demand.
Published by Forbes