The global pandemic has brought a level of uncertainty into everyone’s day-to-day lives and plans for the future. Since 2020, the housing market in the US has been heavily impacted by the pandemic and people’s shifting priorities towards homelife as the world adopts the “new normal.” Now nearly two years later, after soaring prices, supply shortages, and bidding wars, what does the real estate market hold for those looking to enter in 2022?
Generally, economists and real estate professionals predict that 2022 will be less volatile than the previous years and begin a return to normalcy. Home price growth is expected to come down, and buyers will still be facing a seller’s market, though not to the same degree seen at earlier times during the pandemic. However, buyers will not feel these changes overnight.
As winter draws to an end, the market will likely see more houses listed, and homebuilders are still striving to catch up to demand, so there may be a relief for buyers on the way. Just a month into the year, here are some of the trends seen so far and what they could have in store for the future.
Mortgage Rates on the Rise
Pandemic homebuying and feverish demand from homebuyers have been driven by the low mortgage rates, with the average rate for a 30-year mortgage hovering around 3% from early 2020 until the end of 2021. However, rates started to rise in December 2021 and have continued to increase, reaching , reaching 3.75% in January 2022. These higher rates have not been seen since March 2020, and all indications point to see a steady increase in mortgage rates for the remainder of the year.It’s important to note that the US economy is facing 40-year records of inflation as the Omicron variant remains an enduring obstacle across various industries. This economic slowdown caused a slight dip in mortgage rates for a short period, further showing the added uncertainty of our times. Some homebuyers may be eager to lock in these rates sooner rather than later, as all signs point to rates rising throughout the year.
Low Inventory Still Major Obstacle for Buyers
Throughout the pandemic, the supply of available homes has not been able to keep with the demand of homebuyers, leading to soaring prices, bidding wars, and waiving protective contingencies to fast-track offers. This trend appears to remain the same for 2022 due to two primary reasons: Millennials catching homebuilders off guard and rediscovered appreciation for home life.
After the Great Recession, the homebuilding industry saw significant downsizing across many sectors. Due to this, new home builds had decreased throughout the 2010s. Meanwhile, millennials, the largest demographic in the American population, were approaching the point in their lives when homeownership became a feasible option. The pandemic acted as a catalyst for this shortage, where more and more homebuyers entered the market. Still, a new inventory of homes was never built to keep up with this demographic, putting further strain on the supply of available homes.
Additionally, the pandemic brought about a greater dependency on homelife. Even now, many Americans continue to work from home, and this practice has become commonplace in many fields. Houses taking on more significant roles in people’s lives have increased the demand for renters to jump to homeownership and stopped many would-be sellers from listing their homes and opting to stay put.
New Construction Taking Hold
The good news is that more homes are on the way to help bolster the low inventory and provide homebuyers with more options. December saw an increased share of newly built homes for sale, making up 34% of transactions, an increase of only 25% a year ago. Additionally, December saw an uptick in building permits acquired by builders, signaling that more home builds will be on the way as builders are betting the demand for houses will remain throughout the year.
With supply chain issues with lumber and labor shortages, new homes have these high costs of production baked into their price. While the overall increase in supply is a plus for buyers, many may still be looking for preexisting homes and snatching them up quickly due to their lower prices.
Bottom Line for Buyers
With Spring on the horizon and the real estate market set to ramp up into the busy season, buyers may be eager to find a home as soon as possible to secure a lower mortgage rate and price before they rise higher. However, it’s essential to reflect on your situation and evaluate your specific timeline, finances, and priorities to help determine if now is the right time to pursue homeownership. For homebuyers ready to take this step, the good news is that confidence in real estate as a sound investment is rising. According to a study by Gallup, Americans view real estate as the best long-term investment, choosing it over other options such as stocks, savings accounts, and gold.
