CARLA AYERS / APRIL 12, 2022
Now that the snow has melted, we’re seeing the first signs of spring. New buds blooming on tree branches, birds chirping, for sale signs popping up in your neighborhood. Traditionally the busiest months for real estate are April, May, June and July. However, the last few years have been anything but traditional. The COVID-19 pandemic accelerated many housing market trends with Americans adjusting to hybrid work schedules and new challenges in the economy.
But it’s not all bad news from the real estate front this time around. Follow along as we dive into six real estate trends and predictions of 2022 to see where we are and where we’re headed as we enter the busiest time of year in real estate.
1. Home Inventory Levels Could Remain Low
The 2022 housing market is shaping up to be another challenging year for buyers with last year’s low inventory carrying over into the current year. According to the National Association of REALTORS®, by the end of January this year, there were 870,000 housing units on the market. That’s a 15.5% decrease when compared to the previous year’s inventory of 1,300,000 units.
Low inventory has existing homeowners hesitant to sell their home and enter an incredibly competitive buyer’s market with nowhere to go. Many homeowners who had the option to work remotely early in the pandemic made the necessary adjustments to their home to accommodate their new work life balance and they’re happy to stay where they are.
New home construction has been stymied by supply chain and labor shortages. In the past, new home construction helped regulate the demand for housing, however the rising cost of materials and the lack of available skilled workers continues to stall progress across the nation.
What This Means For Buyers
If you’re planning to buy a home in the near future, don’t let the competition scare you away from finding your dream home. Below are some ways you can get ahead of the game in a competitive buyer’s market.
Don’t be discouraged in a seller’s market. It may take seeing multiple properties and a few rejected offers before you’re finally under contract. According to a survey conducted by the National Association of REALTORS®, buyers searched an average of 8 weeks and looked at a median of eight homes before going under contract to purchase a home.
2. House Prices May Climb Even Higher
Much of the United States is still experiencing a seller’s market. With demand for homes at an all-time high, median home prices will likely continue to rise.
What This Means For Buyers
As homeownership becomes less affordable, many of us will need to decide whether to buy or rent a home. As home values and interest rates increase, so will the overall cost of buying a house. But there are few home buying strategies that can help you get to affordable homeownership sooner than you think.
Save up for a larger down payment. The more money you can put toward your down payment, the less money you’ll need to borrow from a lender, and the more affordable your monthly mortgage payment will be.
Look for a smaller starter home. If you have the flexibility, expand your search to include smaller homes. If you can sacrifice some square footage, you may be able to find the perfect starter home, with a smaller footprint, so you can start to build equity sooner rather than later.
It’s important to carefully calculate how much home you can afford before you begin the home buying process. There will be upfront costs like the home inspection, home insurance, and of course closing costs you’ll need to have saved and seasoned before you get to the closing table.
Can we link to where we got this stat as well? Right now, it looks like the single-family home link may have that info, but I’m not seeing it in there.
3. Interest Rates Are Predicted To Slowly Rise
To limit the economic damage of the COVID-19 pandemic, the Federal Reserve reduced interest rates to 0% – .25% in March 2020. This made borrowing money affordable and allowed homeowners to speed up their plans to upsize and adjust to a new way of life in their time of need. In March 2022 the Federal Reserve chose to raise interest rates for the first time since the beginning of the pandemic in an attempt to get inflation under control. They also increased the target range for this by 0.25% to 0.5% – 0.75%.
Last year, experts predicted that average interest rates would break the 3% range in 2021, but not rise much higher than 3.1% – 3.3%. However, the 30-year fixed-rate mortgage interest rate only went up 0.3% between January and November, according to Freddie Mac.
Rates may see 3.5% by the end of 2022, says Freddie Mac. The National Association of REALTORS® puts the number at 2.7%. However, they'll remain relatively low compared to other interest rate crests in past years.
This is good news for prospective home buyers worried about housing prices and rising rates. While mortgage rates are unlikely to change drastically or quickly, it’s always good to keep an eye out and plan strategically, even if rates are relatively consistent.
What This Means For Buyers
Growing interest rates will affect the affordability of owning property for potential first-time home buyers. But with proper preparation, you can still lock in a great rate in a rising rate environment.
Here are a few strategies to ensure your interest rate is the best you can get:
In all the hustle and bustle of preparing for your home purchase, don’t forget your credit score. Improving your credit score is one of the best ways to qualify for a better rate when shopping for a mortgage.
4. More Homeowners May Use Cash-out Refinances
According to the Homeowner Equity Report, U.S. homeowners with a mortgage saw an average gain of $51,500 or an average 29.3% increase in equity per borrower since the second quarter of 2020. This rapid growth in equity has given homeowners the opportunity to take advantage of cash-out-refinances to fund home improvements or other investments to better position themselves financially.
A cash-out-refinance replaces an existing mortgage loan with a new mortgage, leaving the borrower with one payment at a fixed rate. A home equity line of credit (HELOC) is another form of refinancing that exists as a separate loan, creating a second mortgage lien on the property. Many homeowners find a cash out refinance a more predictable and easier to manage refinancing option than a HELOC.
What This Means For Owners
Rates won’t be as low as they were in 2020 but this year is still a good time to refinance for millions of homeowners. With rates still considered historically low, it can pay to convert an adjustable-rate mortgage to a fixed rate loan. For homeowners who haven’t tapped into their home equity, rates are still very appealing for cash-out refinance. You can use your home’s equity to help make home renovations or fund your next investment.
A general rule of thumb is that you should have at least 20% equity in your home if you want to refinance. If you want to get rid of private mortgage insurance, you’ll likely need 20% equity in your home. This number is often the amount of equity you’ll need if you want to do a cash-out refinance as well.
5. Floor Plans Could Get Bigger
With limited inventory and rising home prices, building a home looks more attractive every day to weary buyers. The pandemic forced Americans to look at their home’s role in a different way. Many began working from home, homeschooling their children, and learning news ways to enjoy their time in their space. Many found they wanted more space and more convenience.
Homebuyers that are searching for a home in this market want bigger and better, making it difficult for builders to keep up. According to data from the Census Quarterly Starts and Completions, median single-family home floor plans being built in the first quarter of 2020 had an average square feet of floor area of 2,497. In the fourth quarter of 2021, the average floor plan being built increased to 2,561 square feet.
What This Means For Buyers
Building an affordable home may be the only way to realize your dreams of a large home with custom features built just for you. While you should expect a more expensive process that will require more energy and effort on your part, you can typically expect a higher return on your investment when you sell.
If you feel like you’re ready to take on building your dream home, do your research. Take the time to learn more about the building process, the timelines necessary for permits and construction, and the costs associated with every phase of building a new home. It’s helpful to discuss the type of land tracts available with a real estate agent or REALTOR® that is familiar with the area you intend to build a home. Building a home can be tricky and you want to ensure your new build gets started on solid ground.
6. Virtual Real Estate Services Are Increasing In Popularity
The pandemic increased demand for no-contact real estate services as a way to promote safety and social distancing. This put pressure on the real estate industry to embrace and enhance technology and do business another way. Virtual and online services have elevated the way property is presented the public. Tools like live virtual tours help home buyers limit the number of homes they need to see in person. Gone are the days of home buyers having to think creatively about a space, there are virtual staging services that can give buyers a vision of the home’s potential with a few clicks of a mouse.
What This Means For Sellers
According to NAR, 97% of home buyers use the internet to look for their new home. Technology plays a vital role in our lives and will continue to revolutionize the way real estate is done. Below are a few important features a seller will want to include when listing their home for sale:
The Bottom Line: Research Real Estate Market Trends Before You Buy Or Sell
We know the housing market will change in 2022. As we write this something is already changing – we can feel it. Inventory will likely remain low the rest of the year as home builders struggle to keep up with demand and existing homeowners enjoy the rapid growth of their home equity and ponder how to navigate their next real estate move, if any move at all.
As interest rates increase slowly, homes may sit on the market for longer periods of time, giving more buyers a chance to put in their best offers and potentially win in a seller’s market. If you’re ready for the ride of your life, check out the Rocket HomesSM Learning Center for guides to buying, selling and everything else homeownership.