Americans may have a better chance buying a home in 2022 as more sellers hit the market, but they’ll face fierce competition as demand outpaces inventory recovery, according to Realtor.com’s 2022 Housing Forecast. Listing prices, rents, and mortgage rates are all expected to climb while income levels rise, presenting a mixed bag of housing affordability challenges and opportunities.
Millennial housing demand has been rising for years, but finally peaked over the course of the pandemic. A decade-long housing shortage converged with a new opportunity for young buyers to pursue their first home. Within the next year, millennials account for 53% of prospective buyers who plan to purchase their first home. Although inventory is expected to make a slight comeback in 2022, the demand from first-time-buyers is expected to outmatch new and existing for-sale inventory. As a result, the study concludes that buyers will face fierce competition going into 2022. Researchers even anticipate that this level of demand could continue for the next three years as millennials finish their first home buying years, boomers start to downsize, and a fraction of Gen Z reach home buying age.
“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,” said Realtor.com chief economist Danielle Hale. “With more sellers expected to enter the market as buyer competition remains fierce, we anticipate strong home sales growth at a more sustainable pace than in 2021.”
However, more sellers are planning to hit the market this winter, creating more inventory for first-time-buyers. Home sales are expected to increase 6.6% year-over-year in 2022, which would be their highest level in 16 years as buyers remain active and for-sale inventory recovers, according to the housing forecast. Buyers should expect to see record-high listing prices, fast-paced sales, and limited for-sale options as existing home sales lag behind pre-COVID levels. The new construction supply gap of 5.2 million new homes is forecasted to shrink by 5% in 2022 as builders ramp up production.
“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. And with more than 45 million millennials within the prime first-time buying ages of 26-35 heading into 2022, we expect the market to remain competitive<’ Hale added.
As the economy grows and unemployment declines, bigger paychecks will enable more buyers to compete even as housing costs rise. Additionally, more employees have power to negotiate flexible workplace arrangements, allowing home buyers to explore lower price markets further from expensive cities. In fact, recent survey data shows nearly one-in-five prospective sellers (19%) are looking to move because they no longer need to live near the office, up from just 6% in the spring.
"Our Housing Forecast suggests that we're in store for another dynamic year of activity, but 2022 will also come with growing pains as we navigate the path forward from the height of the pandemic toward a new normal," said George Ratiu, manager of economic research for Realtor.com. "With most real estate markets expected to be competitive in 2022, it's important to remember that you're in the driver's seat of your real estate journey. The bottom line for buyers is to make sure you're comfortable with your timeline and budget – and especially for younger buyers making this massive financial decision for the first time. For sellers, take into account your local market conditions as well as the likely increase in the number of homes for sale, and price yours competitively. The good news is that sites like Realtor.com® provide more advanced digital real estate tools than ever before, including personalized matching to high-quality real estate agents in your local area, to help you chart the best path forward for you and your family."
