2022 Housing Market Predictions: Will The Boom Continue?

This past year has seen unprecedented growth in the housing market. Homeowners gained tens of thousands of dollars in value, mortgage rates hit all-time lows and buyers had to scramble to get into the homes they wanted.

Amidst this frenzy, many people – especially hopeful buyers – have been wondering: is the market slated to cool down anytime soon, or is the boom never-ending? Here’s what the experts have to say about where the housing market might head in 2022.

To be sure, 2021 was a record-breaking year on many fronts. Prices shot up, average time on market plummeted and, as buyers clamored to outbid each other on the limited supply of available homes, the portion of home buyers paying over asking price rose significantly.

How did the market get so hot this year and last? The pandemic is largely to blame. When the U.S. started sliding into a recession in early 2020, as nonessential workers were temporarily furloughed or laid off and consumers opted to stay home to avoid getting sick, the Federal Reserve took action to try and prevent a more serious downturn. It cut the federal funds rate to 0%, which encouraged lower mortgage rates.

In January of 2021, mortgage rates reached a never-before-seen low of just 2.65% for an average 30-year fixed rate mortgage.

These low rates encouraged consumers to get out and start buying homes. But when they entered the market, they were met with a tight supply, as previously existing inventory issues were exacerbated by pandemic-related supply shortages. Not only did labor and supply chain shortages on the construction front limit housing supply, but fewer people were listing their homes, too, as homeowners were reluctant to open up their homes to touring strangers in the middle of an airborne pandemic.

It’s an Econ 101-level question: What happens when you have high demand and low supply? Prices are forced up, which is exactly what happened in the COVID housing market.

After such a wild year, will 2022 bring some relief? Even though rates are slated to increase and inventory still poses an issue, hopeful buyers may be able to breathe a little easier in the coming year as price growth shows signs of normalizing and competition eases.

Purchase Demand

High prices and rising mortgage rates may slightly temper demand in 2022, according to many experts.

Fannie Mae’s Economic and Strategic Research Group predicted in their November forecast that demand will cool slightly in 2022 and that the number of home sales will decrease 3.9% year-over-year. In their news release, the ESR Group said they believe that a large portion of 2021’s huge surge in demand came from first-time buyers whose home buying timelines had initially been pushed back due to the pandemic, and who were looking to take advantage of historically low rates.

Freddie Mac’s economists, however, predict that sales will flatten, rather than decrease. The pace of home sales fell slightly in 2021 and is expected to end up at 6.8 million for the year, a pace they think will continue in 2022.

Mortgage Rates

Buyers and refinancing homeowners alike have enjoyed an unprecedented low rate environment for quite a while now, and time is running short for those who want to take advantage of it before rates tick back up to pre-pandemic norms.

The ESR Group anticipates that we’ll end 2021 with an average yearly rate of 3% for 30-year fixed rate mortgages, but that rates will inch up to 3.3% in 2022. Freddie Mac’s Economic and Housing Research group had a slightly more pessimistic view that 2022 will see an average mortgage interest rate of 3.5%. The Mortgage Bankers Association believes that rates could go as high as 4% next year.

The good news is that the rates we may see in 2022 are still relatively low historically, so even those who weren’t able to take advantage of the low, low rates seen at the height of the market frenzy can still enjoy comparatively low rates.

Housing Inventory

Inventory will likely continue to be an issue in 2022, since this is a problem that long predates the pandemic. However, we may see some slight improvement in the coming year, compared to how tight supply has been during the recent boom. The months’ supply of housing, as reported by the Census Bureau, continues to improve, up from a mid-pandemic low of 3.5 months in October 2020 to 6.3 months in October 2021.

Home Price

The recent price appreciation of the last year and a half has been a huge boon to homeowners and potential sellers, who’ve seen their home values shoot up, but made things difficult for buyers – particularly first-time home buyers and others with more limited budgets.

At the start of 2021, the median sales price of homes sold in the U.S. was $290,838, according to Rocket Homes℠ data. By Q3 of this year, it was up to $331,490. That’s an appreciation rate of nearly 14% – and 2021 isn’t even over yet.

By the end of the year, Fannie Mae believes prices will have grown 16.6% year-over-year, but that growth with significantly decelerate in 2022, with an expectation of only a 7.4% increase year-over-year. Freddie Mac holds a similar view, forecasting a 7% rate of price growth in 2022, while the Mortgage Bankers Association predicts an increase of just 5.1%.

It’s not surprising that many have seen the unprecedented explosion of the housing market during the pandemic and worried: is it a boom or a bubble?

It’s hard to know for certain when or even if the housing market will crash before it happens. However, as the predictions above highlight, a cooling off is much more likely than a complete crash.

Research by Rocket Homes and BestPlaces.net on the most promising cities for 2022 suggests that some of the best places to buy a home in 2022 will be smaller cities that boast more space than their major-city counterparts while offering many of the same amenities and job market opportunities you’d get with a big city.

Impressively, four cities in Idaho (Boise, Coeur D’Alene, Idaho Falls and Pocatello) and three cities in Utah (Provo, St. George and Ogden) made the list.

What guidance can you be providing your clients as they navigate the home buying and selling processes? While it’ll take time for the market to reach a more “normal” level, 2022 may help ease issues that both buyers and sellers have struggled with in 2020 and 2021.

Impact On Buyers

If the predictions hold, the deceleration of home price growth and cooling of demand will provide some much-needed respite for buyers, many of whom have struggled to keep up with the fast-rising prices and extreme competition. However, the flip side of this is that mortgage rates are likely to increase, which can curb their overall buying power.

Impact On Sellers

The loosening of the market may prove to be beneficial to sellers as well, as some would-be sellers reported that the tight market prevented them from listing their homes because they were concerned about then having to be buyers in the same environment. This, coupled with the fact that values will, as they typically do, continue to increase (albeit at a lower rate), means that 2022 could be a year that’s relatively beneficial to them on both sides of the transaction.

Keep in mind that these are all predictions, and that it’s impossible to know for certain what will happen with the housing market in the coming year. However, the comforting news is that the experts think we aren’t likely to see a crash in 2022, and that the market may begin to normalize a bit, making it slightly easier to navigate.

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