- Thanks to the pandemic subsiding and inflation lingering, Redfin expects 30-year fixed mortgage rates to rise slowly from 3% to 3.6% by the end of 2022.
- New listings will hit a 10-year high in 2022, which will hardly make a dent in the ongoing supply shortage.
- Rents are expected to increase 7% by the end of 2022, which is more than double the predicted growth for home prices at 3%.
- In 2022, condo demand will be making a comeback, as more and more homebuyers consider buying a condo or townhome for a fraction of the price of a single-family home.
The coming of the new year provides us with a clean slate, a fresh start, and if Redfin’s predictions are correct, a more balanced housing market. Although it won’t be a buyer’s market anytime soon, researchers expect more selection, less frenzy, and slower price growth.
Redfin chief economist Daryl Fairweather anticipates there will be a frenzied homebuying period at the start of the year before mortgage rates rise and demand begins to drop off. Yet, that early onslaught of demand will be enough to deplete the supply of homes for sale. In the second half the year, a much needed increase in home construction will boost sales slightly. In 2022, there will be 1% more sales than in 2021, and by the end of the year, home price growth will slow to 3%.
Fairweather’s top predictions for the 2022 housing market are as follows:
First, mortgage rates will rise to 3.6%, bringing price growth down to earth. Thanks to the pandemic subsiding and inflation lingering, Redfin expects 30-year fixed mortgage rates to rise slowly from 3% to 3.6% by the end of 2022. That would mean $100 more in mortgage payments for the median home.
By winter, it’s expected that high mortgage rates and high home prices will slow annual price growth to around 3%, which is quite a steep drop from the record 24% increase posted in May 2021.This low price growth should allow more first-time-buyers to finally afford a home.
Secondly, new listings will hit a 10-year high in 2022, which will hardly make a dent in the ongoing supply shortage. The new listings will surpass the 2018 high of 7.6 million homes, setting a new record going back to at least 2012. As the market becomes more balanced buyers will find it less daunting to list their home while looking for a new one to buy. As a result, home-sale contingencies will become more common, allowing a homeowner to make an offer to buy a new home on the condition that their existing home sells first.
Thirdly, rents are expected to increase 7% by the end of 2022, which is more than double the predicted growth for home prices at 3%. Demand for rental will be strong for several reasons, Fairweather asserts, such as the end of forbearance. Many of those existing forbearance will sell their home and start renting instead. As the pandemic subsides, more people will move back to the cities where it's common to rent. Additionally, strong labor markets will cause more people to move to a new city where they will be renting.
Additionally, homebuyers are expected to relocate to affordable cities like Columbus, OH, Indianapolis and Harrisburg, PA over the Sun Belt. Home prices inflated significantly across the Sun Belt as the region dominated in 2021 home sales. Austin, Atlanta and Phoenix have seen home prices increase by 29%, 24% and 35% respectively since the start of the pandemic, making them less attractive to homebuyers that prioritize affordability.
Cost conscious buyers will be more likely to seek out affordable northern cities like Columbus, OH, Harrisburg, PA and Indianapolis, where median home prices are still less than $250,000.
Another meaningful reshuffling may occur as people start to vote with their feet, moving to areas that better align with their politics. Now that workers have more control over where they live, more of them will seek out communities that align with their values. As a result of this shift, there should be more blue enclaves growing within red areas and vice versa. Parents will select school districts that align with their preferences over mask mandates, critical race theory, and other controversial issues.
In 2022, condo demand will be making a comeback, as more and more homebuyers consider buying a condo or townhome for a fraction of the price of a single-family home. That’s an exact reversal of pandemic homebuyer trends when most seeking out bigger homes with big backyards, causing the price of single-family homes to increase 27% from the start of the pandemic, while condo prices only rose 14%.
In a dramatic shift in sentiment, Fairweather predict that more homebuyers will take climate risk more seriously when choosing a home. Homebuyers will want to know about a home or neighborhood’s fire or flood risk and how that impacts mortgage insurance and mortgage rates.
Fairweather also stated that iBuyers focus on perfecting a niche service instead of market domination.
“The major lesson for iBuyers going into 2022 is that if you can't make money on one home, the answer isn't to buy a thousand,” Fairweather stated. “iBuyers are going to focus their efforts on providing premium service that is truly needed for a portion of home sellers. Sellers who want to move quickly to take advantage of a new job opportunity, sellers who don't want to deal with the hassle of open houses and home staging, and sellers who want the cash from selling their current home to buy their next all stand to benefit from selling to an iBuyer.”
A more surprising prediction from Fairweather suggests the Department of Justice (DOJ) will crack down on how agents are paid. Buyers will eventually have to pay upfront for their agent instead of the more common setup where the seller pays commission for both the buy-side and sell-side agent at closing. If buyers have to pay upfront, they will likely become more cost-conscious about the agents they’re working with.
More of Fairweather’s predictions can be read in the full housing market report.