Will 2022 Be Better for Buyers?
Home sellers did very well in 2021. There was just one rub. Most people who sell also want to buy. And homes were very expensive.
Some boomers who would normally be downsizing now, and putting their houses into the market, have not. They’ve stayed put, waiting for somewhere to go that they can afford.
First–time buyers, many working remotely, had better options than ever before in 2021. Interest rates were enticingly low. But first-timers, too, ran into high prices and hectic bidding wars. The U.S. housing market saw its largest year-over-year rise in home prices in 45 years.
Although buying was difficult, those who already own homes could benefit from the remarkable dip in interest rates, and many people did refinance their mortgages.
So, What’s Next?
As 2021 draws to an end, life in real estate is slowing down slightly. Bidding wars are tapering off. Yes, this could have to do with normal seasonal slowdowns. Yet real estate research suggests that 2022 won’t be quite so hectic for buyers.
Demand for homes will still be high, though — in 2022, and almost surely for the rest of this decade. What factors will keep driving the strong demand? Flexible work. The mobility that comes with it. The generational surge in first-time buyers. And reasonable mortgage rates.
As interest rates gradually go back up, hopeful buyers will have to work harder for their mortgages in 2022. Why are mortgage interest rates expected to rise? Economic growth, accompanied by the indirect effects of action taken by the Federal Reserve.
Fortunately, analysts predict a gradual rise in mortgage rates, not an abrupt spike. We can expect the fixed-rate, 30-year mortgage rate to be around 3.25% in early 2022. It could then move to somewhere around 3.5%, on average, by summer, then appear somewhere between 3.7% and 4.25% by late 2022 — still historically low. Nevertheless, the upward interest rate pressure will exacerbate the housing affordability crisis we followed at Deeds.com throughout 2021.
And although home prices aren’t expected to rise as fast as they did last year, they will increase to some extent in 2022 — especially in areas outside of the already sky-high markets like the San Francisco area.
Real Estate Market Crash? Don’t Expect It.
Demand for homes is high and supply isn’t catching up any time soon. This is no recipe for a market crash. Indeed, the housing shortage is expected to be with us for the rest of the decade or longer.
Builders and renovators are encountering supply chain interruptions that increase waiting times and the costs of materials. The worker shortages that have defined 2021 continue to create backlogs. The aggregated effects will cause supply to shrink even more in the months and years ahead.
So, people who worry that buying now means buying into a bubble are probably overthinking their moves. It’s usually best to do what fits the current stages of our lives, rather than to get too caught up in the stages of the real estate market.
As we get ready to ring in 2022, low mortgage rates are still on the buyer’s side.
What’s Hot? Great Amenities and Walkable Downtowns. What’s Not? Commuting.
Electric vehicles may be trendy, but a major housing survey, titled Emerging Trends in Real Estate® United States and Canada 2022, shows people on the hunt for walkable places. Yes, most storefront retailers have given way to online shopping. But there are exceptions. Health rules permitting, people will still be visiting gyms and bike shops, coffee shops and restaurants, grocery stores, and computer and hardware retailers.
Working from home, once the virus emergency response, has settled in as a norm. The change has enabled working people to make moves from highly taxed, coastal hubs to southern and western regions — although Seattle, a dynamic tech hub, is still a draw for young professionals.
Top cities in the southwest are Phoenix, Dallas, Fort Worth and Austin. In the southeast, the big draws are metro Nashville, Raleigh-Durham, Tampa-St. Pete, Charlotte and Atlanta. Among northeastern cities, Buffalo and Boston are attracting high interest. All seem are benefiting from high housing demand and resilient job markets. Many arriving buyers are using new property technologies to run assessments and invest in their chosen markets, and to manage the properties they’re buying.
It’s Real Now: The Rise of the 1099 Mortgage Borrower
Many mortgage companies will encounter prospective borrowers whose earnings consist of 1099 income in 2022. The rise of the app society combined with the 2020 shutdowns has accelerated the gig economy, internet-based work, and, for many, a shift to self-employment. This means big changes ahead for a mortgage industry long focused on W-2 paystubs and traditional salaries.
Before the advent of Covid, it was harder for contract workers to make the case that they have stable income sources. But today’s mortgage industry must adjust — and understand that buyers in the era of Amazon, internet startups and gig economy are here to stay. A new approach is needed to accommodate them.
So, the rise of the non-traditional earner will be a hallmark of 2022. The world will of home financing will start to integrate artificial intelligence (AI) to accurately assess applicants’ borrowing capacity based on more flexible work arrangements than people have had in the past. Although it was not covered in the 2022 real estate trends survey, AI will be a key innovation for the real estate industry, so we’re following it closely.
Climate Changes Real Estate — For Real
“The spring and summer of 2021 may be remembered as the time much of the world finally began to take climate change seriously,” observes PwC, which produced Emerging Trends in Real Estate® United States and Canada 2022 in collaboration with the Urban Land Institute.
“Devastating wildfires, record heat and drought plagued the US West. Massive flooding inundated New York City, Louisiana and elsewhere around the globe, including China and parts of Europe…”
The survey authors observe that environmental, social and governance (ESG) values are widely discussed, yet not all investors think putting their money into ESG will produce better returns. It’s imperative for the real estate sphere to raise its ESG game. The industry is “ideally positioned,” says PwC, to help reduce climate disruption and enhance our capacity to deal with increasing risks.
On a positive note, the 2022 survey shows that 82% of respondents are actively concerned with social and environmental issues, and that their concerns are impacting where they want to buy, how they invest, or which projects they are willing to finance. Indeed, it’s time to stop talking and start taking concrete steps, says PwC. Actually, it’s time for non-concrete steps, given that concrete is now understood to be a major emissions-related material!
☛ Read about The Rise of the Zero-Carbon Home: A Trend Whose Time Has Come on Deeds.com.
Ring Out the Old—Because Some Markets May Be Forever Changed.
One theme we know will prevail in 2022 is change. The housing affordability crisis will worsen, and as interest rates rise, cities will be pressed to come up with solutions. Building materials are high and home buyers are facing inflation to boot.
Beyond those obvious tensions, the data-driven society is creating new expectations. A quest for flexibility and convenience will set the tone for real estate choices not only in 2022, but throughout the decade.
Supporting References
Beth Mattson-Teig for the Urban Land Institute: Emerging Trends in Real Estate® 2022: Flexibility, Convenience Will Shape the Next Decade (Oct. 14, 2021).
PwC: Emerging Trends in Real Estate 2022 – After a Seismic Shock, Surprising Resilience: The Real Estate Sector Roars Back to Life (full report in PDF form here).
Erik J. Martin for The Mortgage Reports: Housing Market Predictions for 2022: Rates, Prices, and Inventory (Nov. 19, 2021).
Deeds.com: For Now…Boomer Buyers Are Still Beating Out Millennials (Nov.24, 2021).
Photo credits: Vecislavas Popa and Liza Summer, via Pexels.