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.
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.
Home sales in 2022 should be solid overall, but high home prices will likely be joined by higher mortgage rates, tempering sales compared to this year. The outsized annual increases in home prices seen in 2021 should slow in 2022, but even so will leave home prices at or near record highs. At the same time, mortgage rates will tend to be firmer as the Fed ends its bond-buying programs and begins to lift interest rates by the middle of the year. Pricier homes financed with higher mortgage rates will exacerbate affordability issues, and this can be expected to dampen demand from homebuyers on the margins of the housing market.
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.