2022 Housing Market Predictions from the EXPERTS! California Housing Market Predictions

2021 Housing Market was a WILD ride! So, what will happen to the housing market in 2022? Will home prices go down? Should you buy a house or Sell a House in 2022?  Let’s see what the experts at Zillow, Redfin and Corelogic have to say.

In 2022 Americans will have a better chance to find a home in 2022, but will face a competitive seller’s market as first-time buyer demand outmatches the inventory recovery. Additionally, with listing prices, rents and mortgage rates all expected to climb while incomes rise, 2022 will present a mixed bag of housing affordability challenges and opportunities. Whether the pandemic delayed plans or created new opportunities to make a move, Americans are poised for a whirlwind year of home buying in 2022. With more sellers expected to enter the market as buyer competition remains fierce, we anticipate strong home sales growth. Affordability will increasingly be a challenge as interest rates and prices rise, but remote work may expand search areas and enable younger buyers to find their first homes sooner than they might have otherwise. Below you’ll find our forecast and housing market predictions on key trends that will shape the year ahead.

Sanity Returning to the Housing Market:

As we step into 2022 the housing market continues to grow.  BUT there may be some sanity coming our way.  According to CNBC The Covid-19 pandemic upended the home-buying process. Historically-low mortgage rates coupled with an inventory shortage created a red hot market, with houses selling within hours of being listed, often for well over asking price.

No one knows exactly what the future has in store. But housing experts tell CNBC Make It that in 2022, buyers can expect similar trends to the past two years: elevated prices, low inventory and fast turnaround.

That said, although it will continue to be a sellers market — home values are expected to increase by double-digital percentage points, Zillow predicts.

There is NO CRASH predicted!

Housing prices rose significantly in 2021 — a nearly 20% rise — and that fast pace will slow, but experts say prices, in general, are still likely to go up. The National Association of Realtors predicts housing prices will climb 5.7% in 2022, while Realtor.com says it’s more like a a 2.9% rise.

To be fair, some markets may actually see prices fall. The CoreLogic Market Risk Indicator, which looks at the health of housing markets across the country, predicts that Springfield, Massachusetts; Worcester, Massachusetts; and Modesto, California, for example, are at the highest risk (50-70% probability) of a decline in home prices over the next 12 months. (attention investors!)

Inventory will remain scarce.

Even before the pandemic, there was low housing stock in the country. And Covid-19 supply chain troubles and a labor shortage have only made things worse. Though builders are trying to ramp up production, inventory will remain scarce.

In fact, the number of homes actively listed for sale fell to a record low at the end of November, CNBC reports. Though there will likely be more listings in the spring and summer, as is typical, it is unlikely there will be enough to meet demand, according to Zillow research.

Realtor.com expects Inventory is to grow 0.3% on average in 2022. While buyers have been eager in the last 2 years, sellers have been on and off. A rising share of homeowners this fall reported planning to sell a home in the next 12 months could signal an improvement in this trend that has been a major challenge for the housing market. With 28% of homeowners choosing not to sell indicating that the reason for doing so is because they can’t find a new home to buy, a pick-up in inventory could be self-reinforcing, drawing out other potential sellers as they find homes to buy.

Rising new construction will eventually feed into this positive trend as well, but first, builders’ pipelines catch up to the usual balance of already-completed vs. under construction vs. not yet started homes. Completed new homes have recently made up half their usual share of all new homes for sale while homes not yet started are twice as prevalent as usual. In other words, new homes are in many recent cases only a viable option if you can wait for the construction process to finish

Home values will continue to grow- just not as high.

Zillow’s forecast calls for 11% home value growth in 2022. That’s down from a projected 19.5% in 2021, a record year-end pace of home value appreciation, but would rank among the strongest years Zillow has tracked. Existing home sales are predicted to total 6.35 million, compared to an estimated 6.12 million this year. That would be the highest number of home sales in any year since 2006. 

Home sales prices are set to continue to increase which will mean notching a decade-long streak of year over year increases early in 2022. The rise in home prices, which began in 2012, has proceeded consistently if unevenly. Following the pick-up from post-recession lows, home prices logged more than a year of double-digit growth in 2013, but since that time the pace of increase has been a more modest 4% to 7% per year.

This changed in 2020. The pandemic ignited a frenzy in the housing market. A decade’s long shortage which meant the market was already 5.2 million single-family homes short was met with an unprecedented surge in demand just as many were expecting the opposite response to the pandemic uncertainty.

While builders worked to adjust, the market balanced high demand and short supply by pushing prices higher. August 2020 kicked off a year-long streak of double-digit home price growth. Looking ahead, with economic growth expected to sustain the purchasing power of eager homebuyers, we expect the median home sales price to continue to increase, rising 2.9% in 2022, a notably more moderate pace. As builders ramp up production to meet demand, home buyers will grapple with higher monthly costs due to rising prices and rising mortgage rates. Affordability challenges will keep prices from advancing at the same pace we saw in 2021 even as ongoing supply-demand dynamics mean prices continue to grow nationwide.

Interest rates will go up.

The Federal Reserve is expected to raise interest rates a few times in 2022, which means mortgage rates will likely rise. Both Redfin and Realtor.com predict a 30-year-fixed mortgage rate will reach 3.60% by the end of 2022, compared to an average of 3.30% now.

Sellers keep the upper hand, at least in the beginning of 2022.

The usual seasonal cooldown in the housing market is reappearing this fall after a hiatus in 2020. Fewer homes are selling above list price, homes are staying on the market a few days longer than they did during the summer, and more sellers are cutting their price. 

Zillow economists expect these metrics to trend slightly cooler in 2022, but don’t mistake that for a buyers market. The market forces that have given sellers the upper hand over the past two years or so — tight supply after years of underbuilding, and elevated demand due to remote work, U.S. demographics and low mortgage rates — will persist next year as well. Expect to see bidding wars on many homes, especially as the market heats up during the spring and summer shopping season. 

Rental prices will go UP.

Rising home values will impact the rental market as well. After a slowdown in the early months of the pandemic, rent prices came roaring back, especially in what were previously some of the most affordable markets. As rising costs make it harder to save for a down payment, expect demand for larger rentals to increase, including for single-family homes, as families stay in the rental market longer. 

Rents: Expected to Outpace Home Price Growth

Like home prices, rents grew slower than is typical in the early part of the pandemic. In larger metropolitan areas with many jobs that remained remote, below-average growth continued into 2021. At the same time, many secondary markets saw rents surge as remote workers took advantage of their flexibility to relocate and save on monthly housing costs. Nationwide, rent growth went from minimal to double-digit pace in 2021 as the U.S. made substantial progress against the pandemic.

With the rental vacancy rate continuing near its historic lows during the pandemic, in which just 5.7% to 6.8% of rental housing units are vacant at any point in time compared to 7% or more, historically, renters are also contending with limited supply and excess demand that leads to upward pressure on rents. In 2022, we expect this trend will continue and fuel rent growth. At a national level, we forecast rent growth of 7.1% in the next 12 months, somewhat ahead of home price growth as rents continue to rebound from slower growth earlier in the pandemic.

KEY TAKEAWAYS:

Searchers Dream Big, but Budget Realities and For-Sale Availability Might Mean Smaller Homes Prevail

With the suburbs still popular and at least occasional remote work likely an option, homebuyers are likely to continue to prefer larger homes that provide space for working at home from time to time as well as versatility. At the same time, rising affordability challenges may cause some homebuyers to decide to sacrifice space to make a home purchase work with their budget. Notably, newly constructed single-family homes have begun to get larger after declining over the last few years. However, the typical active single-family home for sale has trended smaller in recent months. 

WATCH MY VIDEO ON HOW TO SEARCH FOR A HOME LIKE A PRO

First-time Homebuyers Face an Uphill Journey

First-time homebuyers will need to be successful in the 2022 housing market if we are going to see the homeownership rate begin to climb again. In many respects it will be an uphill journey given the slightly better but still-limited for-sale inventory environment, high and rising prices, and rising mortgage rates all pushing monthly costs higher. A competitive labor market, however, should help offset some of these higher costs in the form of higher paychecks. Additionally, extended work-place flexibility may enable first-time buyers to explore more affordable housing markets that wouldn’t be an option if a daily commute was expected. The sheer size of the population at or near typical first-time home buyer age will mean plenty of potential from this group to impact the market in 2022

CHECK OUT THE MOST AFFORDABLE AREAS IN San Diego

How can homebuyers prepare?

To navigate these challenges, buyers will want to carefully consider their budget before embarking on their home search. Buyers can use online tools like the affordability calculator found in home listings on Realtor.com to get a sense of how much they can afford, and once they’ve set a price point, rate-proof that home purchase budget by running the numbers to see how higher mortgage rates could affect the monthly payment. Bottom line for buyers: no matter what the calculator says, make sure it feels comfortable to you! Additionally, honing a list of must-haves vs. nice-to-haves can help shoppers keep their search focused. And buyers can also use personalization tools so that their online search is similarly dialed-in on homes that are the best fit. 

What will 2022 be like for home sellers?

Homeowners who are ready to sell in 2022 are in a good position. Home prices are likely to notch a decade-long streak of annual gains early in the year, and the value of homes is at a record $34.9 trillion according to Fed data as of mid-2021, and likely to continue higher with next week’s release of new data. Even as for-sale inventory begins to grow, meaning some sellers will face competition, well-priced homes in good condition will continue to sell quickly in many markets. And for sellers who have owned their homes for a while, this will likely mean that they walk away from the transaction with a healthy amount of cash. While surveys show that many sellers recognize the advantage they hold in the current housing market, other data show that it’s the challenge of buying that is holding some back–more than 1 in 4 homeowners choosing not to sell reported this in our recent survey. The sellers most poised to take advantage of this market are those who don’t also need to buy immediately–those ready to sell second or vacation homes, but with some offices opening back up even as other companies shift to indefinite remote work policies, homeowners in vacation markets may find a notably cooler market than prevailed in these areas in 2021 when vacation home sales surged and surfaced unexpected vacation towns.

How Can Sellers Prepare?

The first step for sellers will be to explore their options for selling. Whether it’s a first home sale or you’ve done this before but it’s been a while, you may be surprised to find out that there are more ways to sell your home than you’d imagined. Explore your options so that you can choose the best way to sell your home.  Choices include cash sales with ibuyer programs, for sale by owner, flat fee commission or basically just listing in the MLS to traditional sales, which generally helps sellers get MORE MONEY for their home.. For many sellers, this is going to be listing their home with a real estate agent who can showcase your home on the market to a wide range of potential buyers, getting you the highest price.

What will 2022 be like for renters?

Renters will see increasing rents in 2022. As home prices will keep rising in 2022, a great proportion of the population who cannot compete for a new home are likely to continue renting. In addition, higher home costs due to mortgage rates, which are expected to rise, could accelerate this pattern, raising demand for rental homes. Already in 2021 rising home prices and mortgage rates pushed housing costs to high-levels relative to incomes nationwide and in several large metros

On top of these trends, given the substantial improvement against the pandemic, those who moved to live with families may plan to move out and live alone again, forming what economists refer to as a new household. These new households will further boost rental demand and speed up rent growth. On the supply side, in addition to materials shortages and higher labor costs, which will hamper construction of new rental homes, the termination of various eviction protection laws may give landlords a chance to recoup losses by raising the rents. Conversely, these landlords could decide to exit the rental business altogether, recouping their losses by selling their rental home. This move could potentially benefit homebuyers, who may be able to snag these former-rentals, but this could reduce the supply of homes for renter households. Whether these houses flip to become owner-occupied or remain rental homes will depend on investor appetite for rental properties.

What will 2022 be like for investors?

In 2022, investors will continue to see solid returns from their investments in the housing market. With home prices expected to rise, existing owners are in a good position, and rising rents are likely to entice investor buyers to continue to purchase homes even as rising mortgage rates challenge potential returns. After an unusual 2020, in which more investors were sellers than buyers, 2021 saw investors buying homes at a greater rate than selling them in the spring, and this investor surge continued into the summer. If these homes are held for rent, 2022 will be an excellent opportunity to receive high yields given the solid demand and projected rising rental prices. Most pandemic-related eviction protections have expired and the few remaining areas with limits in place have expiration dates in 2021 or early 2022. With protections expiring, and many renters still behind on rent payments, an increasing share of landlords report considering eviction. Whether these landlords continue to hold and rent these homes or decide instead to get out of the investment business by selling their investment home remains to be seen. We’re watching New York, Los Angeles, and Chicago metro areas, in particular, where the share of landlords who are missing rent is 15%, 12%, and 18%  according to recent data from our Realtor.com network partner, Avail.

If you are thinking about buying a home in 2022, make sure to download my free guide.

Selling? there’s a guide for you too!

Tristen Campanella is a top producing real estate agent in San Diego County, specializing in North County San Diego.  Her client’s love her honest and result producing approach to buying, selling and investing in homes.  Make sure to contact her today to discuss your real estate needs and journey.