After living through the last 18 months and the effect that the pandemic has had on the United States, if not the world, nothing comes as surprise — at least not anymore. But what has shocked many is the recent real estate boom happening across the country.
We've all heard stories where people living in the city are moving to the suburbs. (Can we even blame them? You try living in a studio or one-bedroom apartment during a lockdown.) Or how people living in the suburbs are now moving further out into the country, cashing in on their home and buying a larger property. And with work-from-home options available for most, people can now work from anywhere.
So, where do we go from here and what will the real estate market look like in 2022? Will it still be a seller’s market? And if so, what can possibly change or even derail the rising home values and prospects for the real estate industry in the year to come?
5 U.S. Real Estate Market Predictions for 2022
Let’s state the obvious: We do not have a crystal ball or any powers that would allow us to see into the future. If we did, we would all have very successful careers in sports betting or investing in the stock market. That aside, what we do have is the ability to research data and trends and make an educated guess on where things are going based on various indicators, including mortgage rates, housing inventory, buyer and seller behavior, costs of building materials and the state of the workforce.
In this article, we will take a look at five predictions taking into account the trends listed above as they will affect the housing market and the real estate industry in 2022. Though hindsight is 20/20, we will use foresight to try to cut through the fog and see what lies ahead for real estate professionals in the next 12 months.
1. The Migration Out of Cities to the Suburbs Will Slow
The pandemic has motivated migration shifts, especially when it comes to people moving out of cities. This may be attributed to the opportunity to work remotely. Now that many offices are closed or have reduced employee occupancy, and the option to work from home has become available to millions of Americans, many families have taken advantage of the opportunity to find more suitable living arrangements to deal with both the pandemic and their budget.
It’s no surprise that living in a city can be more expensive than living in a suburb or rural county. (Try this cost of living calculator and see for yourself.) The latter also offers more room within the home and less congestion within the town. According to Bloomberg, for every 100 people that moved out of the New York metropolitan area, 84 people moved in, seeing a net decrease of 16 percent. In the same time span, the Hudson Valley saw an increase in its population, with 197 people moving in for every 100 moving out. That’s a population increase of almost 100 percent.
For many, the pandemic may have given them the opportunity to cut the commuting cord with work. They no longer had to worry about a one-hour train ride followed by a 40-minute subway ride. Moving outside of congested areas may also provide a sense of safety away from perceived “hot zones” of the coronavirus and whatever new variant appears. But now that vaccines are available to protect us from the worst effects of the virus, these migrations out of the cities are anticipated to slow down. Another factor to consider is that moves may no longer be financially viable as home values have gone up and the supply of homes has gone down.
As real estate professionals, it is important to keep track of these trends by monitoring key indicators in your region, including:
- Sales price (are prices increasing or decreasing?)
- Inventory (are there more homes on the market?)
- Days pending (how long does it take for a home to sell?)
- Homes sold above their asking price (this shows the direction of home prices or if there's a potential bubble)
By keeping a finger on the pulse of the real estate market, you can better gauge the types of properties that are selling, as well as who is moving into your region. (For instance, someone coming from Manhattan may be looking for more property to raise a family.)
2. Housing Inventory and Building Supplies Will Be Scarce
According to Moody’s, mortgage applications have seen a steady decrease since hitting a peak level in January 2021. This may be attributed to the rising home values, which are pricing out most middle-class and lower-income households. Prices for many homes have gone up around the country.
A recent report by the New York State Association of Realtors indicates that the median home price has increased by 24 percent this year. The number of new listings also fell by 7 percent and inventory of housing units decreased by 21 percent. As far as what’s available, many buyers find themselves bidding higher than the asking price in an effort to buy a home.
Compounding the issue is a current supply shortage that is expected to affect home builders for months to come. Even people looking to remodel may encounter problems when it comes to renovating or shortages when buying new appliances to replace a broken dishwasher or refrigerator. With container ships waiting outside of ports for weeks, and expected delays in delivery that last for months, there seems to be no clear sign that supply will meet the current demand needs.
For real estate brokers, the focus may need to shift from new home sales to existing homes with owners looking to cash out and take advantage of the current frothy home prices, opening up the market to new buyers.
3. Mortgage Rates Will Rise
A recently released report by the Mortgage Bankers Association (MBA) forecasts the mortgage rates for a 30-year fixed loan will rise in 2022 to 4 percent, which is a 1 percent increase over where they were in 2021. According to the MBA, mortgage origination fees — the cost of what lenders charge borrowers for a mortgage loan — are also expected to go down by 33 percent, which is attributed to the decrease in volume of sales for the coming year.
Taking all things into consideration, the mortgage rates continue to be at historic lows, and even a 1 percent uptick may not be substantial enough to dissuade buyers looking to find their perfect home. A 4 percent interest rate will look a lot better than a 5 percent rate in 2023. And let's not forget that mortgage rates were once as high as 18 percent in 1981.
4. There Will Be an Increase in Real Estate Agents
Though the increase in mortgage rates and the anticipated shortfall in inventory and continued rise in home prices may paint a grim picture of the real estate market, it has not discouraged future real estate agents and brokers. In fact, according to Statista, membership in the U.S. National Association of Realtors has grown significantly in the last several years, reaching an all-time high of 1.46 million members in 2020.
This increase in the number of realtors also correlates with the rise in home sales during this same period. Home sales in 2012 were at 4.66 million units, while 2020 saw 5.64 million units sold. Forecasts for 2022 bump that number even higher with the addition of almost another million units to 6.44 million homes expected to be sold. According to the U.S. Bureau of Labor Statistics, the job of real estate broker and sales agent will continue to grow by 4 percent annually into 2030. This number may be attributed to existing homes, as we predict new homes will be in short supply.
What does this all mean and does it even make sense? As far as we can tell, the "American Dream" of owning a home is still alive and well. And while there are challenges ahead for middle-class and lower-income buyers as far as homeownership goes, many buyers with the resources and the flexibility to bid up home prices will continue moving home values up. For real estate agents, this translates to higher commissions and faster sales as buyers go out to grab available properties.
5. We'll See a Decline in In-Person Home Showings and Open Houses
Taking into account that we are still in the midst of a pandemic and the risks it brings to people’s health, it’s no surprise that open houses, in-person visits and home tours may not be the first step potential buyers may now take to view a home. Rather, technology has provided the flexibility and convenience to tour a home remotely, if not virtually. This allows for a safe option for buyers, sellers and agents alike. It also helps save time and allows buyers to narrow down their options. Once they like what they see, they can always go visit the site and kick the tires.
For the most part, many real estate agencies and services offer remote tours. And thanks to mobile apps, virtual goggles and other tech innovations, being able to “walk” through a site from hundreds of miles is now a can-do reality. Real estate professionals should get acquainted with virtual home-tour software and apps like Kuula, CloudPano and My360. Even a little bit of tech-savvy can go a long way as today's smartphones allow agents to film properties and provide a personalized tour for potential clients.
What’s Next? Boom or Bust?
Real estate has gone through cycles of crash and boom. Migration patterns change and can be influenced by cost of living, work, and even a pandemic. But what may appear as an exodus of people one year may change into an inflow, especially considering major cities, the allure they bring and even the job opportunities they offer. While home prices may seem to be continuing their march higher, the rental market also anticipates seeing a rebound in 2022. Will 2022 be a seller’s market or will deflated real estate prices bring buyers back to major metropolitan areas like New York City, turning it into a buyer’s market?
The potential factors that can influence the real estate market in the coming year have been outlined above. The ability to get a mortgage and find the perfect home all play a part in this industry. Though inflation fears may influence people’s wallets, the reasons why people move cover the spectrum. Whether it’s for work, more room or even the desire to live in a different setting or part of the country, it all depends. What we can do is take a look at the macro picture and extrapolate (or predict) the reasons why people would move and how the market will respond as far as home prices, loans and supply. Beyond that, anything goes and only a look back in 2023 will prove if our assumptions were accurate.
Whether you're an agent selling or buying a home for your clients in 2022 or in the process of starting a real estate business, Incfile can help you get your business off the ground, no matter what the market does over the next year.