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What to Expect for the 2022 Housing Market

As we head into the fourth quarter of this year we start to wonder what is in store for the upcoming year? For any homebuyer, saying the 2021 housing market has been difficult to navigate would be a massive understatement. Median days on market dwindled to numbers so low that if you didn’t put in an offer before it hit the market chances are you already lost. On the other hand if you are a home owner you probably had more Realtors than ever come knock on your door to try and convince you to sell with the 100K+ in equity you saw gained over the past year.

Many experts stated that this years housing market shot way ahead of the economy, to a point that we saw an extremely hot market characterized by multiple offers, contingency waivers, buyer’s paying sellers closing cost, and of course RECORD HIGH PRICES. With all that being said 2021 has been a year for the record books, but what is in store for next year? The craziness brought upon by this year has left many people wondering if this next year will be a good time to enter a real estate transaction. Will the housing market crash? Will we be able to sustain the crazy high prices? There are a lot of questions out there and although we certainly cannot predict the future, we did our best to forecast what the 2022 housing market will look like based off of current market patterns and trends.

So what can we expect from the 2022 Housing Market?

Buyers will likely have more housing supply to choose from.

The past year we have heard the word ‘scarcity’ a ton. Currently there is a national shortage of 6.8 million housing units. With such limited inventory we saw a double-digit price growth in the market in 2021 (ATTOM Data Solutions). However, as prices for some building materials stabilize in 2022 and builders take in new inventory, we may see new construction flourish. The Mortgage Bankers Association (MBA) expects single-family housing starts to be around 1.134 million. And that could be just the beginning, as projections in the future are even more optimistic: 1.165 million single-family homes in 2022 and 1.210 million in 2023.

A more buyer-friendly market is on the horizon, but don’t expect housing prices to drop.

This year we saw a buyer frenzy, many people gave up hope after the constant battle with bidding wars, and price increases. Next year we will see a re-entrance into the market of those buyers that decided to sit out on the madness. But if you are one of them do not expect prices to magically drop. However, the double-digit acceleration in home values we have seen recently may start to drop in the 2022 real estate market but will still remain relatively high. Freddie Mac, at the start of the year, predicted that home values will accelerate by 6.6%. We’ve seen prices accelerate at double this rate in 2021, and prices still trend upwards. In 2022, they predict a 4.4% price increase because an influx of new inventory, especially between the second and third quarter, will stabilize prices. 

Expect 2022 to provide a more normal sales cycle and offer process.

The economic growth that started in the third quarter of 2020 is expected to continue into 2022. The federal reserve’s forecast on real economic growth for 2022 is 3.3%. Which is good news for everyone. The 2022 real estate market might be a lot less hard on buyers than the past, but that does not mean it will be a walk in the park. There is still a possibility of bidding wars, especially in desirable locations such as Utah. However, overall we should see the market start to normalize. In the madness of this year, some sellers ended up having to front more cash for repairs than expected because they bought without due diligence. When a home had multiple offers it was easy for buyers to waive the inspection contingency. We expect that with the normalization of the market this will no longer be a problem as we will be back closer to a normal offer process that does not need to be unnecessarily expedited. Although the 2022 real estate market might not be such a frenzy, real estate projections point to a fair deal of competition. We can not stress enough how important it is for you to conduct proper due diligence before signing the papers.

Expect mortgage rates to continue to rise in 2022

A huge factor that has lead to an influx of buyers is the appeal of relatively low mortgage rates. In December 2020 through January 2021 we saw an average rate of 2.66%. As we finish out this year mortgage rates are already on the rise due to continued economic growth. This means that buyers who were solely attracted by low rates may have to take a step back. Rising mortgage rates will create a small dampening effect on demand. According to Freddie Mac’s estimate, the 30-year fixed mortgage rate will average 3.4% in the fourth quarter of 2021, increasing to 3.8% in the fourth quarter of 2022. This would have a stabilizing effect on price growth as the price-inventory problem continues. As expected, mortgage originations will decline in 2022. Refinancing originations will decline from $ 2.65 trillion in 2020 to $1.83 trillion in 2021 and $770 billion in 2022. Single-family mortgage origination activity will decrease from $4.04 trillion in 2020 to $3.48 trillion in 2021 and $2.39 trillion in 2022.

Will the housing market crash in 2022?

Unlike the last housing crash in 2008, inventory has declined to critical levels making it nearly impossible to create the same scenario leading to a crash. As stated previously the US market is 6.8 million homes short of what is needed to meet the country’s housing demand, up 52% as compared with 2018’s shortfall (Freddie Mac). While low inventory is a problem, it also creates an opportunity for home equity to rise, and hence the 2022 real estate market will more than likely continue to be a hot seller’s market. This means a housing market crash isn’t likely to happen in 2022.

Bottom Line. After this last year we know that anything can happen, especially things we can not plan ahead for. While this is a realistic projection for the 2022 housing market based off of how the current market is moving, that does not mean things can not change. The truth is we can not predict the future and every state, city and neighborhood is very different. If you want the best advice and insight on what’s happening (or projected to happen) in the current housing market where you live, contact us at the Red Sign Team and we will pair you with a local expert!

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