What Can We Expect From The Housing Market in 2022?

As the year draws to a close, the question inevitably comes up: what will the housing market look like in 2022? The short answer is that nobody really knows – or more correctly, that nobody actually agrees on one prediction. A few things are easily noticeable though, and that helps us paint a picture for what that means going forward. 

The biggest news is that the Fed will likely raise rates, and some are predicting an average interest rate of 4% on mortgages next year. That’s not a huge jump from where we are now, but that can add $45,000 onto a $250,000 home on a 30-year, fixed-rate mortgage. Low interest rates and less-than-expected economic fallout from the pandemic priced more buyers into the market, as they continued to work. 

Speaking of work, increasingly normalized work-from-home allowed buyers to spread out and not be confined to city areas, raising real estate prices more uniformly and removing work-home proximity from buyers’ consideration process. That looks to be a continuing trend, so while the behavior of the residential market will reflect this and may not change much, decreased use of office space as a result could carry implications for the commercial market.  

Supply issues aren’t going anywhere, and that’s likely to keep exerting an effect on the market. The reality is that construction simply hasn’t kept pace with demand for a variety of reasons. Increased cost of building materials, covid restrictions on builders, and even losing a few months to the few lockdowns we did have in areas around the country here and there all add up to inventories that were low before the pandemic, had absolutely no chance to catch up during it, and remain low today relative to the number of interested buyers. Higher interest rates may relieve some of that pressure, but it remains likely that home prices will still see an increase year-on-year by next October. Even if a price decrease of 2.5% happens, as some experts predict, home prices would still be about 20% above pre-pandemic levels. 

Adding to an inventory crunch is the continuing first wave of Millennial homebuyers, and they’re not slowing down. This comes alongside the Baby Boomers who dropped out of the workforce during the pandemic, accelerating retirement and quality of life plans. As a general rule, people were able to save at higher rates than expected over the past two years, and this may put more of them in a position to purchase homes. The stock market has created more wealth, and as home prices grew, so did owners’ equity in them, which frees them up to at least consider moving. So while we’re likely to see a slight decrease of eligible buyers due to higher interest rates, it probably won’t do much to counter overall demand, especially given current inventories.

The long and short of it is that not a whole lot will change drastically. We may very well see a 2022 that looks like a less fiery 2021. Bidding wars are decreasing, but it’s hard to know right now if that’s a seasonal event or not, since sales typically slow down in the late fall and winter. Here in Florida, there are fewer seasonal swings, especially on the coast. For us, Fall and Winter are Condo Season, as snowbirds from up north look to lock in their winter getaways for when the real cold weather hits, while vacationers and investors begin looking for condos and homes for rentals to use during the summer months. 

  • Matt

Matt Guarro is a top-producing Florida REALTOR servicing the New Smyrna Beach, Winter Park, Edgewater, Port Orange, and Daytona Beach areas.