What Can We Expect From The 2022 Housing Market?

The real estate market has been anything but predictable since Covid 19 struck in 2020. While many expected the housing market to slow and buyers to “wait and see” what would happen, almost the exact opposite thing happened. The housing market has been on fire all around the country, continuing to be strong even during historically slow periods.

So, it begs the question: what can we expect from the 2022 housing market?

Inventory continues to be a challenge for interested buyers, and the market is still favoring sellers with record price growth. Did you know that home prices appreciated 19.9% between August 2020 and August 2021? That’s a new 12-month record.

But some experts say we may have reached a turning point. Several factors are at play, including possible rising interest rates by the Federal Reserve that would price some buyers out of the market. Additionally, interested buyers are stepping back from the bidding wars that became national news during the pandemic, and their seasonal buying behavior is starting to return to pre-pandemic levels. That is a time during the holiday and typical vacation periods when real estate buying generally cools off.

In looking at 2022 and what we can expect from the housing market, there is a lot of disagreement amongst economic forecasters. Some believe that the cooling trend will continue into the new year, while others believe we could see price growth that is the highest on record.

According to Zillow and Goldman Sachs, they believe that demand from first-time millennial home buyers will continue to soar. This is partially due to the fact that the five most significant millennial birth years between 1989 and 1993 will be reaching the typical first-time home-buying age of 30 soon. And as has been the case since the pandemic, there simply aren’t enough homes to go around and meet the demand.

On the flip side, Freddie Mac and Fannie Mae believe that U.S. home price growth will be 7% and 7.9%, respectively. That’s hardly the growth we have seen over the past year of 19.9%, which is four times the average level. In addition, both Redfin and CoreLogic see 12-month prices falling even further, mostly due to rising mortgage rates.

In that regard, the Mortgage Bankers Association predicts that the median price of existing homes will fall by 2.5% between Q4 2021 and Q4 2022. Their forecast is based on the average 30-year fixed mortgage rate that will hit 4% by the end of next year. While that 4% number may not seem consequential at first glance, it would add an additional $90,000 in cost to a $500,000 fixed-rate mortgage over the life of the loan.

It’s hard to believe that we are knocking on the door of 2022 and that the real estate market continues to remain red hot in Orange County. If you’re interested in discussing your real estate plans for the new year, please reach out to me. I would be happy to lend my expertise.

Melody Smith & Associates is a longtime leading broker associate in South Orange County, known for superior service, and is in the top 1% of 1% of agents in the country. Please contact us for all of your real estate needs.