Housing Market 2022: What Should Buyers Expect?
Zillow recently published a report revising its previous predictions and predicting that house prices will climb 13.6% between October 2021 and October 2022. It expects a tight market to exist with demand exceeding supply. CoreLogic forecasts that house prices will increase by 2.2%.
Others are also bullish to one degree or another. But there are also predictions that house prices will drop by the end of 2022. The reason price forecasts seem to be all over the place is due to some uncertainties about 2022. What can buyers expect?
Demand continues to be high
The COVID-19 pandemic fueled a rise in housing demand with low mortgage rates and more remote work possibilities. Detached single-family houses were in great demand with more living space and privacy than attached properties offer. Demand is still high as many employees continue to work remotely. Millennials are contributing to the demand as they enter the housing market.
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Low inventory is still an issue
The housing supply is at its lowest level since the 1970s. Inventory has increased slightly but it is still significantly lower than it was before the pandemic and is unable to meet the current demand.
In November, the markets showed some signs of rebalancing due to more homes coming on the market but it is still largely a seller’s market. As house supply increases so prices are likely to gradually moderate.
Inflation raises risks of higher mortgage rates
Mortgage rates were cut in 2020 due to the pandemic and this helped to mitigate the problem of rising prices. Elevated inflation raises the risks of a tighter monetary policy resulting in higher mortgage rates. It’s uncertain how high the average 30-year mortgage rate will go next year and higher rates would lock some buyers out of the market.
With a higher mortgage rate forecast for 2022, it is anticipated that refinancing activity will soften and total originations will decline. When mortgage rates rise, affordability becomes a challenge. The 30-year fixed-rate mortgage was 2.9% in the third quarter of 2021 and Freddie Mac forecasts that mortgage rates will increase slightly and reach 3.5% for the full year 2022.
Supply delivery issues and rising material costs
Builders are trying to close the supply-delivery imbalance but they are being hindered by supply delivery issues and rising materials costs. The pandemic brought construction to a halt and the sector is still suffering from supply chain problems and labor shortages. If these issues persist in 2022, they will continue to affect house prices.
Signs that the market is becoming healthier
Predictions from a number of real estate brokerages indicate that 2022 will bring more balance to the housing market. Many cities experienced bidding wars early in 2021 but sky-high asking prices are coming down.
There are fewer competing offers with contingencies returning, both indicating that the housing market is healthier. Home-sale contingencies allow homeowners to make an offer to buy a new home on the condition that their existing home sells first.
Less competition, more available homes and more approachable prices will mean buyers are more likely to find suitable homes. An increase in lower-priced houses means median price listings in some metro areas are falling. While property prices are still high, owners may have to consider pricing more competitively in the near future.