There are many predictions about the state of the real estate market in 2022. Home prices are expected to increase, and demand is likely to remain strong. The number of homes available for sale as Del Aria Team notes is expected to grow by more than 5%. There are also some factors to keep an eye on, including the lack of inventory, rising home prices, and the increasing share of Boomers in the home buying market.
Low Inventory
When housing inventory is low, it means there are fewer options for buyers. While this is often a good thing, it can also create challenges for homebuyers. Fewer homes on the market means fewer buyers, which can lead to higher prices. According to the National Association of REALTORS, the housing inventory for the United States was at 1.16 million in May 2022, down from 1.1 million a year earlier.
The housing shortage has a variety of causes. One is the housing bubble that burst in 2008. As a result, the production of new homes was negatively affected. In addition, global supply chain issues affected progress in the construction of new homes in the last several years. Meanwhile, price increases in building materials exacerbated the situation.
Rising home prices
Rising home prices are expected to continue in most markets over the next few years, with demand still outstripping supply in many areas. There is still plenty of room for growth, and many homeowners will list their homes for sale, making it more important than ever for buyers to act quickly. However, some markets may slow down in growth and prices may move out of reach for many buyers.
As of June 2018, the median national home price rose by 16.6% compared to the same month last year. However, this increase came in the context of a slowdown in real estate sales in the Midwest. Rural areas may also be experiencing a slowdown in the real estate market, though the bump in housing prices may be less severe in rural areas.
Rising mortgage rates
Rising mortgage rates are a concern for the housing market. These rates are directly related to the price of a home. A steep increase in mortgage rates would cause a drastic drop in demand for homes, and could lead to falling prices. The resulting effect would be a downturn in the economy, as fewer people would be looking for new homes, and existing homeowners would feel less secure and may curb their spending. While rising interest rates are a concern for the real estate market, economists predict that prices will continue to rise, and that some will even reach double-digits.
The housing market continues to face challenges as rising rates have slowed demand. The number of active listings fell 19 percent last month, compared to April 2021. While more homes were expected to hit the market in the spring, it is clear that rising mortgage rates are preventing some sellers from moving. This means that those who do sell will end up paying a higher price for their next home.
Boomers as largest share of buyers
Millennials are the largest segment of home buyers, and Baby Boomers, the oldest generation, represent 42 percent of home sellers. They are increasingly entering retirement and seeking a lower-maintenance home with fewer responsibilities. Their empty nests have also led to downsizing to smaller spaces. However, Baby Boomers also tend to prefer larger multigenerational homes, which can accommodate both aging parents and their adult children.
This trend has been driving older millennials out of the housing market for months. These generations built their wealth by purchasing homes and are now priced out of the market. The gap between their real estate assets and millennials’ is now over $11 trillion.
Impact of COVID-19 pandemic on the housing market
The impact of the COVID-19 pandemic on housing markets in 2022 is still uncertain, but there are some predictions about future price trends. Using data from the U.S. housing market, Zillow’s economists have estimated the impact of the pandemic on housing values at an individual level.
Among the most significant impacts of COVID-19 are on the housing market. The first wave of infections caused a drop in sale prices of $60,000 and an increase in unemployment of 8%. These price effects were even more prominent during the second wave of infections. In most cities, COVID-19 caused a price discount between 1 and 50%, averaging 14%. The effect was more severe in more affluent, but less densely populated neighborhoods, due to the fear of contagion.
In spring 2021, a Delta variant of COVID-19 emerged, and the number of infections spiked. As a result, many people jettisoned travel plans, resisted eating inside restaurants, and stayed home to watch movies. Employers also pushed back their plans for a return to the office until the epidemic was over. As a result, realtors needed to strengthen their flexibility and capacity to adapt quickly.
Del Aria Team
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