Don’t miss out! 7 things to expect for the real estate market in 2022
The new year is just a few days away, and is there a better way to prepare for it than checking out the real estate market trends and knowing what to expect? We don’t think so! We’re a data-driven company, which means we get excited with every piece of information available.
We’ve already done a bit of a wrap-up about what this year was like for real estate here. To sum up, 2021 was the strongest real estate market in 15 years. In particular, single-family existing-home prices rose at the fastest pace in five decades at an average year-over-year pace of 18%. This was due to strong job growth, historically low mortgage rates, and a post-pandemic recovery in household formation, mixed with supply bottlenecks caused by the pandemic and slow housing construction.
But what’s the forecast for 2022? Will prices keep increasing – and will they do so at the current pace? And what about inventory? Over the last few months, we spotted a bit of a calming trend in our Real Estate Market Trends free report, especially in Median Sales Prices and Days on the market. However, year-over-year comparisons still showed a considerable gap, with two-digit increases in most cases.
Although it would be great to know for a fact where the real estate market is headed, we can’t foresee the future with such precision. Nonetheless, we gathered here seven things to expect from it in 2022.
1. Prices will increase, but at a slower pace
As we mentioned above, single-family existing-home prices rose 18% on average in 2021, according to the National Association of Realtors (NAR). Several sources indicate that this rising trend will still be among us in 2022. However, it would be slower.
NAR estimates housing prices will climb 5.7% in 2022, while Realtor.com predicts a 2.9% increase.
2. Mortgage rates are expected to move higher
For most of 2021, mortgage rates were at 3%, which means they were near historic lows. However, this might change next year. NAR’s chief economist Lawrence Yun assured Forbes that “mortgage rates will rift 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.”
Realtor.com, on the other hand, predicts an average mortgage rate of 3.3% throughout the year, hitting 3.6% by the end of the year. Other companies like LendingTree also expect similar growth.
3. Inventory is on the rise
Inventory was a struggle throughout 2021. In April, the mortgage-finance company Freddy Mac alerted that the U.S. real estate market would need nearly 4 million properties by the end of 2020 to meet the country’s demand.
The good news is that this is about to get (a bit) better. NAR expects an increase in supply due to more home construction, the ending of the mortgage forbearance program, and the rise in Covid-related deaths among the elderly. And inventory growth should help reach the forecast on prices since there will be more properties on the real estate market.
The senior vice president and chief economist for the National Association of Home Builders is also confident about this. He explained to Forbes that “the level of single-family housing starts will be about 25% higher than it was in 2019, pre-Covid.”
Nevertheless, this doesn’t necessarily imply that all inventory issues will be solved. It’s much likely that the real estate market will remain hot during 2022.
4. Sales will remain strong
A strong economy and labor market are the pillars that seem to keep home sales strong during 2022. However, the increase in mortgage rates might affect them slightly. In fact, NAR foresees a 2% drop next year, mainly because of that rise.
Greg McBride, a chief financial analyst at Bankrate, seems to agree with that. “Limited supply of homes available for sale and a strained pace of homebuilding will keep prices elevated, but even modest increases in mortgage rates will price more first-time buyers out of the market,” he said to Forbes.
5. Millennials will keep the real estate market competitive
According to a report from LendingTree, millennials – or people who were born roughly between 1980 and 1996/2000 – were the largest group of homebuyers in the United States in 2021. And apparently, they intend to keep the podium in 2022.
Since they’re between 26 and 35, they’re considered first-time buyers. So, if mortgage rates don’t play against them, they will keep the real estate market competitive. While on this topic, Matthew Vernon, a lending executive for Bank of America, made a promising observation in dialogue with Forbes: “Millennials are its peak home-buying years, and 52% of younger generations say the importance of building equity has become more important recently.”
6. Technology is here to stay
The Covid-19 pandemic sped up the adoption of technology in various areas. From virtual open houses and lockboxes to eSignatures and project management systems, it entered the daily lives of real estate investors to keep up with their businesses in the last two years.
And it’s determined to stay there, as well. According to NAR’s 2021 Technology Survey, in the last 12 months, respondents found that the five most valuable technology tools used in their business were eSignature (78%), local MLS apps/technology (54%), social media (53%), lockboxes (48%), and video conferencing (39%).
Furthermore, the top three tech tools that have given respondents (or their agents) the highest number of quality leads in the last 12 months were: social media (52%), customer relationship management (CRM) (31%), and their MLS site (28%).
If you haven’t included these tools in your business – or you’d like to improve them –, wouldn’t this be the perfect time to take a look at our off market listings and CRM Integration?
7. Top housing markets for 2022
Lastly, this wouldn’t be a complete article about what to expect for next year without mentioning the markets you should definitely keep an eye on! We talked about some hidden gems here, but Realtor.com created a ranking of ten outstanding areas to follow closely in 2022.
Unlike the gems selected according to undervalued markets, this list is based on the combined yearly percentage growth in both home sales and prices expected in 2022 among the top 100 largest markets in the country per Realtor.com’s metro level housing forecast.
These are the top 10 real estate markets:
- Salt Lake City, Utah (combined growth: 23.7%)
- Boise City, Idaho (combined growth: 20.8%)
- Spokane-Spokane Valley, Wash. (combined growth: 20.5%)
- Indianapolis-Carmel-Anderson, Ind. (combined growth: 20.4%)
- Columbus, Ohio (combined growth: 20%)
- Providence-Warwick, R.I.-Mass. (combined growth: 17.7%)
- Greenville-Anderson-Mauldin, S.C. (combined growth: 17.1%)
- Seattle-Tacoma-Bellevue, Wash. (combined growth: 17.1%)
- Worcester, Mass.-Conn. (combined growth: 16.6%)
- Tampa-St. Petersburg-Clearwater, Fla. (combined growth: 16.4%)
The last two years were marked by uncertainty. Covid-19 changed how we do almost everything and defied us in numerous ways. And now, the Omicron variant is a reminder that the pandemic is not over yet, and that we may have an uncertain 2022 ahead, as well.
The health situation can change all these trends and expectations, but that doesn’t mean we can’t foresee the future. Information, data, and analysis help us make better decisions, and here are some key aspects to keep in mind for what’s coming.
Despite how things turn out, here you can find some pillars to expand your returns and decide where to invest. You know now that sales will remain strong, though prices will keep growing at a slower pace, inventory will improve slightly, and mortgage rates are about to increase. Also, you know that adopting technology is no longer optional, especially if you want to appeal to the most promising demographic group: millennials.
And at last, you have a better idea of both undervalued markets (which can be an excellent investment to boost your profits) and some outstanding areas that are worthy of some attention. Now, it’s time to plan your year and see what the future brings.
And remember: at Real Estate IQ, we have the best and freshest data on the market for you to #Win2022inRealEstate!
Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is designed to be legal or financial advice.