Last year was one for the real estate history books. The pandemic helped usher in a buying frenzy that caused home prices to soar nationwide by a record 19.9% between August 2020 and August 2021.1
However, there were signs in the fourth quarter that the red-hot housing market was beginning to simmer down. In the month of October, only 60.3% of sales involved a bidding war—down from a high of 74.5% in April.2 While this trend could be attributed to seasonality, it could also be a signal that the real estate run-up may have passed its peak.
So what’s ahead for the U.S. housing market in 2022? Here’s where industry experts predict the market is headed in the coming year.
MORTGAGE RATES WILL CREEP UP
Most economists expect to see mortgage rates gradually rise this year after hitting record lows in late 2020 and early 2021.3
Freddie Mac forecasts the 30-year fixed-rate mortgage will average 3.5% in 2022, up from around 3% in 2021.4
The Mortgage Bankers Association predicts that rates will tick up to 4% by the end of the year. "Mortgage lenders and borrowers should expect rising mortgage rates over the next year, as stronger economic growth pushes Treasury yields higher," said Mike Fratantoni, chief economist for the Mortgage Bankers Association at their 2001 Annual Convention & Expo in October.5
However, it’s important to keep in mind that even a 4% mortgage rate is low when compared to historical standards. According to industry trade blog The Mortgage Reports, “Between 1971 and December 2020, 30-year mortgage rates averaged 7.89%.”6
What does it mean for you? Low mortgage rates can reduce your monthly payment and make homeownership more affordable. Fortunately, there’s still time to lock in a historically-low rate. Whether you’re hoping to purchase a new home or refinance an existing mortgage, act soon before rates go up any further. We’d be happy to connect you with a trusted lending professional in our network.
HOME PRICES LIKELY TO KEEP CLIMBING, BUT AT A SLOWER PACE
Nationally, home prices rose an estimated 16.8% in 2021.8 But the average rate of appreciation is expected to slow down in 2022.
Danielle Hale, chief economist at Realtor.com, told Yahoo! News, “Home asking prices have decelerated in the second half of 2021, with median listing price growth slipping from a peak of 17.2% in April to just 8.6% in October.”10
But experts disagree about how much more property values can continue to climb this year. Goldman Sachs predicts that home prices will rise by 13.5%, while Fannie Mae and Freddie Mac are forecasting a 7.9% and 7% rate of appreciation, respectively.2
However, not all analysts are as bullish. The National Association of Realtors predicts a 2.8% rate of appreciation for existing homes and 4.4% for new homes, while the Mortgage Bankers Association expects the average home price to decrease by 2.5% by the end of the year.10,2
According to Hale, “With prices near all-time highs and mortgage rates expected to rise, we expect this slowdown in prices to continue.”10
In an article recently published by 9 News by Denver Business Journal, "Despite a serious lack of inventory and a blistering sales pace, Denver doesn't rank anywhere close to the top of a recent Realtor.com forecast of the hottest real estate markets of 2022.
The Denver metro comes in at No. 48 out of the nation's top 100 metros in terms of the predicted change in price and number of sales for next year – that's an 11% total increase, 6% for number of sales and 5% for home prices.
Denver's predicted increase is much less compared to other Western markets, like Salt Lake City, Boise, Idaho and Spokane, Washington, which are all expected to see a combined increase of more than 20%, according to the Realtor.com analysis.
But even though Denver's projected sales increase is outpaced by other metros, local experts are still predicting a fast-paced year for the residential real estate market, considering a massive drop in inventory between October and November, the largest on record."
What does it mean for you? If you’re a buyer who has been waiting on the sidelines for home prices to drop, you may be out of luck. Even if home prices dip slightly (and most economists expect them to rise) any savings are likely to be offset by higher mortgage rates. The good news is that decreased competition means more choice and less likelihood of a bidding war. We can help you get the most for your money in today’s market.
RENTS WILL CONTINUE TO RISE
Along with home, gasoline, and used vehicle prices, rent prices rose dramatically last year. According to CoreLogic, in September, rents for single-family homes were up 10.2% nationally year over year.11 And economists at Realtor.com expect them to climb another 7.1% in 2022.12
“Homes are expensive now...but for most people, the comparison that is most important is how that cost of homeownership is going to compare to the cost of renting,” Zillow Senior Economist Jeff Tucker told CNBC in November.13
Tucker also pointed out that rent is less predictable than a mortgage—and more likely to go up along with inflation.13
Real assets, like real estate, are often used as a hedge against inflation. That’s because property values typically rise with inflation.14 And when a homeowner takes out a mortgage, they lock in a set housing payment for the next 30 years.
In contrast, renters are at the mercy of the market—and they don’t gain any of the benefits of homeownership, like tax deductions, equity, or appreciation.
George Ratiu of Realtor.com told CNBC that he advises buyers to consider their budget and time frame. If they plan to stay in the home for at least three to five years, he believes it often makes sense to buy.13
Fortunately, it’s shaping up to be a better year for buyers. “I think 2022 has the promise of providing less competition, a lot more homes to choose from, and, as a result, a lot more approachable prices,” Ratiu said.13
What does it mean for you? Both property and rent prices are expected to continue rising. But when you purchase a home with a fixed-rate mortgage, you can rest assured knowing that your monthly mortgage payment will never go up. Whether you’re a first-time homebuyer or a real estate investor, we can help you make the most of today’s real estate market.
I'M HERE TO GUIDE YOU
While national real estate numbers and predictions can provide a “big picture” outlook for the year, real estate is local. And as a local market expert, I can guide you through the ins and outs of our market and the local issues that are likely to drive home values in your particular neighborhood.
If you’re considering buying or selling a home in 2022, contact me now to schedule a free consultation. I'll work with you to develop an action plan to meet your real estate goals this year.
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- Freddie Mac - https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-strong-housing-market-will-continue-even-rates-and
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