How Is the Housing Market Right Now? 2022 Trends to Watch

In 2021, you experienced a wild housing market. The combination of low mortgage rates, work from home offerings, and home buyers’ willingness to relocate created the perfect conditions for a buying frenzy.

Few predicted that the demand for homes would so largely outstrip the available supply. All of the movement helped create the highest home value surge on record in the United States, making 2021 one of the most competitive real estate markets in recent history.

As we settle into the new year, the real estate market continues to take shape. You might need help navigating the developing housing market, so we conducted extensive research with industry experts to provide housing market predictions for 2022.

Additionally, our research lays out action-shaping insight for sellers looking ahead and considering their options this year.

What to expect in 2022: Predicted real estate trends

Home prices will likely continue to increase, but at a slower rate. The National Association of Realtors surveyed more than twenty top U.S. housing and economic experts; the experts predicted that home prices will increase by 5.7%. It’s important to remember that a slower increase in home prices does not constitute a downturn.

Here are the factors contributing to our housing market forecasts for home prices:

• Inflation and rising mortgage rates: Home prices are likely to increase with inflation and continued buyer demand. However, this growth may be somewhat tempered by rising mortgage rates. Some industry experts predict we will see mortgage rates as high as 4.25% by the end of the year, reducing the buying power of many would-be homeowners.
• Increased employees working from home: A willingness to relocate and work from home drives demand. “Remote work is one of the biggest reasons why there’s a lot of shortage in housing supply,” notes Hedda Parashos, a real estate agent with sixteen years of experience in San Diego.
• Construction industry supply shortages: Initially, supply shortages will affect prices in 2022. As the year unfolds, the cost of materials should drop, and the supply chain gridlock should loosen.
• Increased costs for building materials: Although material prices should return to Earth from the stratosphere, a renovation revolution will increase early-year construction costs.

Contractors will be in demand

People investing in their homes require a lot of contractors, and they are a finite resource. “It’s hard for anyone to hire a contractor,” Parashos says, noting that even if you do land a contractor, they are usually booked “four or five months out.” That demand for renovation materials drives up the price for everyone – including new home builders.

Home Values will continue to rise

Home values will appreciate in 2022, with some predictions estimating a rate of 11% increase. While this is down from a projected 19.5 percent growth last year, NAR’s senior Economist and Director of Forecasting, Nadia Evangelou, predicts homebuyers will have the opportunity to build equity in their home this year.

Mortgage Rates will keep edging up

Mortgage rates will likely continue to increase, it appears. Freddie Mac reported the 30-year fixed rate at 3.35% in January 2022, and it’s now dancing in the 3.85% to 3.92% range. How high rates will go has conflicting answers. Most agree that the rate will continue to increase, but there is variance in how much.

In October of 2021, the MBA Annual Forecast predicted a rate increase of 4.0% by the end of 2022.

Nik Shah, CEO of Home. LLC, a San Francisco down payment assistance broker thinks mortgage rates will “rise to 4.25% by the end of the year.”

Pashos expects the rates to increase as the number of people who can afford a home decreases. “If the interest rate is higher, your monthly payment is a lot higher,” Pashos says, noting that many buyers will take a hit to their buying power or may even drop out of the market entirely, which could decrease demand for homes. .

Markets should settle down

The housing market should cool as we get into the mid and later portions of the year. Ralph B. McLaughlin, Real Estate and Housing Economist at Kukun, says, “Expect both [mortgage rate and house prices] to bring us a more “normal” looking housing market later in the year.”

Inventory will remain tight but improve

Available inventory will continue to be a challenge for homebuyers but should improve. McLaughlin predicts, “Inventory is, and will remain, tight through the spring buying season,” saying that the combination of increased home prices and mortgage rates will result in an “affordability ceiling.”

What will drive the 2022 housing market’s upward trend?

The housing market will continue to benefit sellers, but there will be some fluctuation caused by:

• Millennials: NAR’s Generational Trends Report shows 37% of homebuyers in 2021 were millennials. That number will increase. An estimated 45 million Millennials (26-35) may buy their first homes in 2022. An increase in the buyer pool may continue to drive demand.
• Home prices: McLaughlin believes home price growth will slow in 2022, “[the] current pace of home price growth is unsustainable. Expect the market to hit a price ceiling by mid-year.”
• Mortgage rates: Rates will continue to go up in 2022. As a result, buyers will try to secure a lower rate before further increases and will want to buy a home soon.
• Inventory: Remote work will have a significant impact on housing inventory. Pashos noted, “we see a lot of buyers from the Bay Area who’ve been completely priced out of their market and come to San Diego and live comfortably.”

HomeLight’s Top Agent Insights Report for New Year 2022 compiled the findings from a survey of over 1,000 top real estate agents in the HomeLight network nationwide. The report says the “Great Resignation” has a “noticeable effect on housing.” All in all, there are more relocations which may increase the strain on inventory.

Something that may increase the inventory of homes in the latter part of 2022 is the end of forbearance. For 18 months, there were COVID-19 emergency protections granted to struggling mortgage holders, and that protection is ending, which means 38,000 homes could go into foreclosure. Those homes could potentially end up shuffled back into the overall housing market inventory.

How fast will homes sell in 2022?

According to Federal Reserve Economic Data (FRED), the median number of days a house spent on market in 2021 dipped as low as 36 in June — one of the lowest days on market (DOM) in recent history.

FRED shows as of January of 2022, homes spent 61 days on the market. For comparison, in January 2020 it was 85.

Historically, as DOM goes up, home prices will go down. Inversely, when DOM goes down, home prices typically go up.

We predict that homes will still sell relatively quickly in 2022. The National Association of Homebuilders and Wells Fargo conduct a monthly survey measuring the housing market. The survey revealed current market conditions are still relatively good for sellers. But the home buying bonanza of 2021 is probably over.

How will 2022 housing trends impact you and your home?

What does all this mean for home sellers? It means that sellers have a chance to take advantage of our housing market predictions for 2022.

Here are some of the ways you can take advantage of our predictions:

• Low inventory: Seventy-five percent of HomeLight’s agents predict an inventory shortage in 2022. Low inventory means high selling prices. There is high demand when you couple low inventory and the desire to lock in a low-interest mortgage rate. As demand increases, so does cost.
• Better chances of bidder wars: Gen Z home buyers are entering the market as millennials enter their prime buying years. An increase in the buyer pool amplifies an already low inventory problem which drives home prices up.

What does all this mean for homebuyers?

There may be opportunities for buyers to buy more affordable homes.

One of the ways you can increase the likelihood of getting a good deal, whether you’re buying or selling a home, is by staying informed. Check out our Real Estate and Market trends to keep your fingers on the pulse of the real estate market.

As a homebuyer, you may consider:

• Compromising on some wants: You may not get the exact home size, amenities, or upgrades that you want, especially in the current market. The best way to tackle the market is to partner with an experienced top agent.
• Broadening your search area: This works incredibly well if you can work remotely. If you consider alternate locations and neighborhoods, you may find an affordable home more successfully.
• Getting a preapproved mortgage: A preapproved mortgage means you get an estimate of your borrowing potential based on your finances and a credit check. If you get preapproved, you are a more attractive homebuyer to sellers.
• Making a bigger down payment: If you can make a larger down payment, it helps your offer. Other benefits include the potential to avoid private mortgage insurance, more affordable mortgage payments, lower rates, and less overall interest.

If you are a first-time homebuyer, you will need to make your offer stand out. From HomeLight’s Housing Market Preview, here is a list of things you can do to make your offer stick out to sellers:

• Ask for no repairs
• Include an escalation clause
• Offer appraisal gap coverage

What does all this mean for homeowners in general?

As interest rates rise in an attempt to ease inflation, your home will probably appreciate slower. Although your home is slower in appreciation, you will likely maintain your equity in 2022 as your home value should increase at a higher rate than inflation.

It appears the real estate market will remain stable: Rising rates and a potential rise in inventory makes the “outlook look less terrible for buyers,” says McLaughlin.

As buyers compromise on their wants, they will be ready regardless of your home’s condition or location. Forty-five percent of agents believe there will be an exodus into the suburbs in 2022.

Growing trend of online real estate services

Online real estate services are changing the way the real estate industry operates. “Online real estate services help make the search, acquisition, and closing process on a home much more efficient and less time consuming than in the past,” says McLaughlin. “As such, buyers and sellers need to be ready to move at the speed of technology or else risk being left behind.”

More and more consumers are taking advantage of fast, simple, and convenient online services – like those that HomeLight offers:

• Home Value Estimator
• Affordability calculator
• Selling costs and net proceeds calculator
• Agent Match
• Simple Sale
• Cash Offer
• Trade-In

*Cash offer and Trade-In not available in all states

You could also choose to use an iBuyer (instant buyer) like Opendoor, Offerpad, or Redfin. Remember, when you use an online cash offer service, typically, you make less profit from the sale but you benefit from a fast, no-hassle transaction. With iBuyers, you generally can skip repairs, agent commissions and showings.

What else should you know about the changing housing market?

If I can’t find or afford a home, will it be wise to enter a rent-to-own agreement in 2022?

If you struggle to come up with a down payment, have less than perfect credit, and don’t want to rent traditionally, rent-to-own might be right for you. Always consult with an attorney before going this route, as many rent-to-own contracts strongly favor sellers.

What will be some of the hottest housing markets in 2022?

The Sun Belt should continue having a hot market. “Las Vegas and Arizona are going to continue to be a really hot market,” Pashos says.

You will find additional surging markets in Texas, Georgia, and Florida.

As the market changes and fluctuates, you may be afraid of listing your home without finding a new one. After all, there are no guarantees – that’s where the HomeLight Trade-In program could benefit you.

With the program, you can avoid the stress of buying and selling a home simultaneously by:

• getting an offer for your current home from HomeLight
• leveraging that offer to make a stronger bid on your dream home
• moving into your new home when you’re ready

*HomeLight Trade-In is not available in all states

Get ahead of market trends: partner with an experienced top agent

It’s tough to make reliable housing market predictions for 2022. There will be competing forces that dictate how the market moves, including:

• home prices
• mortgage rates
• housing inventory

With the market in flux, it is more important than ever to have someone your trust to guide you along the path to explain to you:

• what will drive the 2022 housing market’s upward trend
• how fast homes will sell in 2022
• how the 2022 housing trend impacts you
• anything else you should know about the changing housing market

Demystify the market by using our Agent Match tool and find the right real estate agent for you. Our tool analyzes millions of transactions, thousands of reviews, and other data points to find the best agent to suit your needs.

Header Image Source: (Joshua Rainey Photography / Shutterstock)