It seemed like 2020 broke the housing market. A combination of low mortgage rates, the desire for more space, high demand paired with low inventory, and supply chain issues that made building new homes difficult were just some of the reasons that the housing market gained more value in 2020 than in any other year since 2005.
Then 2021 brought another hot market, with average prices increasing by 18.5 percent from the third quarter of 2020 to the third quarter of 2021, according to the Federal Housing Finance Agency.
Moving into 2022, it’s difficult to predict exactly what the market will look like. But after talking with real estate agents in both urban and rural areas of the U.S. about what they expect to see this year, the picture becomes a little clearer.
The pandemic will continue to influence moving trends.
Pandemic restrictions across the country have varied from state to state and town to town. Some buyers are taking those restrictions into account while home shopping, moving to areas that align more closely with their needs and values.
In-person school is one reason that people have made a move and will continue to relocate, according to Lacey Granger, a Realtor in northwest Wisconsin with 15 years of experience in the industry. She has seen people from California, Minnesota, and other states moving into northern Wisconsin to be able to get their children into schools in person.
In New York, remote work has given people the opportunity to widen their search radius. Nicole Beauchamp, known for her command of the New York City real estate market, notes that companies have changed their in-person requirements. Many people no longer have to be in the office five days a week, with some switching to once a week or twice a month, changing how people look for a new home. She has seen buyers’ search radius widen, explaining they “might be willing to commute further. So what might have been a radius of a maximum 60- to 90-minute commute can change significantly,” she says.
The lack of inventory isn’t going away.
In both rural and urban markets, a lack of supply in the face of increased demand has led to higher prices. This shortage of available homes on the market has plagued buyers throughout the last two years and will likely carry on through 2022.
Beauchamp says that “given continued supply chain issues, and that for the last several years (pre-pandemic) there was not enough housing being constructed generally in the U.S.,” she expects “to see a continued inventory crisis with high demand.” In New York specifically, the city struggles with providing affordable housing even as construction of luxury housing continues.
Granger says that in her rural area, “We just do not have inventory to keep up with buyers,” and she expects that trend to continue. “We are not able to build enough homes to keep up with buyers.” She also notes that many existing homes “are not in the condition that most buyers are looking to get into.”
Ishmael Omandi, a real estate agent who fell in love with selling real estate in Dubai and now serves the Dallas-Fort Worth area, sees the same trend. Even though new homes are being built, “the homes that are being built won’t seem to meet the demand in 2022,” he says.
Mortgage and tax rates will guide buyers’ decisions.
As the pandemic took hold, the Federal Reserve took steps intended to protect the economy. One step was lowering interest rates, resulting in historically low mortgage rates that encouraged people to borrow money to purchase a home. This contributed to the lack of inventory and higher sale prices, because more people wanted to buy and take advantage of low interest rates than were willing to sell.
Omandi sees the market responding to this strategy with decreased demand. “Since the pandemic, we have seen the mortgage rates drop to the lower 2 percent, which is unimaginable,” he says. “Going into 2022, we see the mortgage rates slightly going up, thus easing the demand for houses.”
Beauchamp also sees inflation and the mortgage rate increases likely coming in 2022 as having an impact on the housing market. “We need to look closely at taxation impacts, how many states have lost a significant portion of their tax base, and how that impacts the finances of the state and the remaining residents,” she says, because many people made their decisions based on tax rules.