In 2021, we saw an extraordinary property market. Prices across most of the country skyrocketed at unprecedented rates.
For most of the year, mortgage rates hovered under 3%, meaning that buyers have been able to access higher amounts of finance, contributing to record-breaking price growth. We have also seen some of the lowest foreclosure rates in decades. High costs of raw materials and labor have meant that new construction has been both costly and delayed.
All these factors combined have contributed to low inventory levels across most markets and a strong seller’s market. As a result, buyers have had to compete for homes, often leading to sale prices well above asking. According to Redfin, the typical house sold in an average of 15 days, while 60% of homes sold within two weeks.
With such a unique market last year, what can we expect from 2022?
While we still expect a strong market this year, it’s not likely to have the same price growth as 2022. The National Association of Realtors’ chief economist, Lawrence Yun, said that we might see sales decline, however, remain higher than the pre-pandemic market. This forecast is based on an expectation that more homes will be listed for sale in the coming months.
This increase in inventory will be partially created by new construction. Now that lumber prices have started to come back down, more homes will be constructed – however, still at a slower pace due to supply chain challenges. In addition, with forbearance now ending, it’s also expected that foreclosure numbers will begin to creep up, and some struggling mortgage payers will have to sell, resulting in more homes on the market.
As more houses hit the market, the supply and demand ratio will begin to even out. This will lead to fewer buyers focusing on a single property and a drop in multiple offer scenarios. As a result, the NAR predicted that home prices will rise a moderate 5.7%.
The Federal Reserve has announced that it will be increasing interest rates this year. These rate hikes will directly impact consumer loans making it harder for buyers to get the same level of financing. This contributes to already present affordability issues, which will keep prices from growing at the same levels as 2021.
2022 is looking like an interesting environment for the residential real estate market. What we can have confidence in is that there will be an increase in both inventory and prices.