2021 was a great year for home sellers, but not so much for home buyers. Thanks to the big housing market shift and the sharp rise in home prices, the number of homes for sale decreased. Even though the 2022 housing market continues to benefit sellers, it offers buyers a better chance to invest in their dream homes. 

Let’s explore how!

The State of the Housing Market in 2021

In 2021, home prices accelerated. According to the National Association of Realtors, the median home price hit $362,800 in June 2021. Moreover, according to Redfin, there were only 1.38 million houses for sale throughout the country in June, which is 23% less than the prior year. Low mortgage rates and the limited number of homes for sale pushed the prices higher. 

The 2021 housing market was affected by the pandemic, its effect on the US economy, and the American way of life. According to Redfin’s chief economist Daryl Fairweather, low mortgage rates, remote work, a shortage of building materials, and wealth inequality enabled many rich Americans to buy vacation homes, which helped create a historic year for real estate in the country. 

Buyers paid more for their new homes and bought them sooner than planned. According to Redfin, the usual home sold in merely 15 days in 2021. Also, over 60% of the houses went off the market in two weeks. Moreover, according to NAR’s profile of homebuyers and sellers, around a third of homebuyers in 2021 bought their homes above the asking price. First-time buyers increased by 3%, the largest jump since 2017. The average first-time buyer was 33 years old. 

2022’s Big Housing Market Shift

In 2022, the average 30-year fixed mortgage rate hit 4.67%. Back in December 2021, this rate was 3.11%. The soaring mortgage rates will bring in a big housing market shift. They will create an instant bundle to the demand side of the market and cause prospective home buyers to think twice before buying a house. Some borrowers will also not remain eligible for mortgages. 

Borrowers who are able to maintain their mortgage eligibility will still take a step back because of the additional cost the rising mortgage will add to their payments. For instance, borrowers who took out a mortgage of $500,000 at a 3.11% rate would have to give a monthly mortgage payment of $2,138. However, at a 4.67% rate, their monthly payment will rise to $2,584. When you consider the 30-year loan repayment, they will have to pay an additional $160,698. 

The Market Will Cool Down

However, industry insiders say that we should not expect a housing crash despite the volatile real estate market. In fact, several housing analysts believe rising mortgage rates will be enough to cool down the market but not so much to crash it. As home buyers hesitate to buy new homes, it could allow the existing inventory of for-sale homes to rise. 

Today, the number of US homes for sale is still 48% lower than the pre-pandemic level. If that number rises, it might be enough to ease the volatility of the housing market that has resulted in it experiencing unsustainable price appreciation. 

According to the lead analyst at HousingWire, Logan Mohtashami, the housing market is experiencing a savagely unhealthy stage. People across the board should embrace the higher mortgage rates to enable the inventory to rise. 

When evaluating 2022 housing market trends, it’s important to note that the US housing market continued to see massive demands in March of this year, despite the rising mortgage rates. However, it’s only because several of those March home buyers, especially those purchasing a new home, already had their mortgage rates defined at earlier rates. Buyers seeking new homes in the upcoming months will not have that luck. 

Rising Mortgage Rate Will Deter Homebuyers 

Redfin economists believe that as home mortgage rates swiftly approach 5%, the expected impact on homebuyer demand is to change from the sense of urgency to buy a house before the mortgage rate rises to step back from buying since the cost exceeds their budget. This big housing market shift is from a motivator to a deterrent. 

The higher mortgage rates will see home price growth slow in the coming months, which will result in relative success for the Federal Reserve since it needs to limit inflation. The unstable yet hot housing market is one of the most significant contributors to runaway price growth across the economy. 

Dallas Fed researchers wrote that the evidence points to a volatile real estate market behavior in the US since the early 2000s boom. Reasons for concern are rooted in economic indicators. The rising house prices are out of step with the fundamentals. 

More Inventory Will Ensure Sales Exceed Pre-Pandemic Levels

According to Laurence Yun, National Association of Realtors’ chief economist, the housing market’s success will continue even though the performance will not be as remarkable as last year. The overall sales will exceed pre-pandemic levels since there will be more inventory in the coming months. The increased supply will be due to the rising mortgage, which will force homeowners to sell, and new housing construction. So, home prices will continue to rise but slowly. 

NAR surveyed over 20 housing and economic experts who predicted that median home prices would hike by 5.7% in 2022. They also predicted that new-home sales would rise to 920,000, which is more than 2021, which had around 800,000 sales. 

Home Buyers Will Face a Competitive Seller’s Market

Chief economist at Realtor Danielle Hale believes that home buyers will have a better chance to find houses this year despite facing a competitive seller’s market. Affording a home will be a challenge due to the rising interest rates and home prices, but remote work will expand their search areas and enable younger home buyers to find their ideal homes sooner than later. Due to the housing affordability challenges, home prices will not advance at the pace we experienced in 2021 despite the continued national growth of prices. 

So, even though homebuyers will face the rising housing market prices and increasing mortgages, they will also benefit from the availability of more housing options due to newer construction and the slow growth of house prices in 2022 compared to last year.