Top 7 Housing Market Predictions for 2022

The latest trends still represent a healthy market, but it will only be a matter of time before we see a change. The next 12 months in the housing market in the United States is going to be a thrilling ride. Here are my top seven predictions for the housing market in 2022:

1) 2022 will be the year of foreclosures: 

Recent data from black knight show that as much as 1 million backlogged foreclosures are being processed leading into 2022. With the CFPB foreclosure ban lifted in September of 2021, banks are actively pushing to start and finalize foreclosures on seriously delinquent borrowers starting as early as January 1st of 2022. This will flood the market with REOs (Real Estate Owned) and is expected to slow annual price growth.

Although the market for foreclosures will be strong, don’t expect to get a steal on a property. Most of the REOs hitting the market will be priced at or near market value given the current condition of the housing market. But make no mistake; that can all change in an instant if home prices deteriorate more than anticipated.

2) Housing Inventory Overcorrection

If we analyze the amount of new home listings between 2020 and 2021, we will see that there has been a listing shortage compared to the years 2017 to 2019. Many homeowners delayed putting their houses on the market, which is preventing a reasonable supply of homes for sale and artificially causing low inventory. As of December 2021, there were only 480,000 active listings in the market, compared to a typical 1.25 million homes available before the pandemic in March 2020.

On top of that, builders and developers were bottlenecked by material and labor shortages.  Housing projects were delayed throughout 2020, and many single-family homes that were started in 2019 were completed in 2021. Based on single-family housing starts and building permits pulled in 2021, expect roughly 1.5 million housing units to be finished in 2022. 

Housing experts believe that the psychology of home sellers is also shifting. Homeowners are starting to believe that they can’t wait any longer and need to take advantage of current market conditions. Combining this with the oversupply of housing units set to hit the market, we could see a surge in the housing supply by the third quarter of 2022. 

3) Expect Higher Mortgage Rates

mortgage rates

During the heart of the pandemic, mortgage interest rates dropped to as low as 2.75% making buying a home very affordable. However, these historically low mortgage rates are set to see massive changes. Mortgage rates in the first quarter of 2022 are reporting around 3.7% and I expect mortgage rates will rise to 4.50% by the end of the year. 

The Federal government had been buying MBS (mortgage-backed securities) in order to drive competitive interest rates. According to the Mortgage Bankers Association, the Feds are withdrawing from the MBS market earlier than anticipated, leading to this interest rates rise. The shocking part is how fast we are seeing rising mortgage rates. 

What does this signify for housing costs in the United States? The average mortgage payment in America was about $1200 per month when we had record low mortgage rates in 2020. At 3.7%, we are seeing a 30 percent increase or monthly payments of $1570 per month. 

4) Investment Property Sell-Off

The majority of existing home sales in 2021 were from speculative investors and second-home buyers. In fact, only about 26% of all home sales were made by first-time buyers. According to housing experts from Core Logic, investors made up around 30% of all housing sales in 2021, an increase from the average of 16% in the years prior.  

These groups have been the most active in the market due to stable rent growth and moderate price growth. High demand from investors is causing distortion in home prices and rental prices. Many of these investors are showing up as cash purchasers, offering above the asking price, which is driving home values higher. 

Here is the issue that I am seeing, the top markets with the highest investor activity are in areas with already high housing prices. This is only encouraging the tight supply of homes, which will further push up the area’s median price. This greatly affects traditional buyers who are having difficulties putting a down payment together as home prices rise at such a rapid rate that they can’t compete. 

Furthermore, home prices are not keeping up with rent rates which will make it harder to cash flow.  We are starting to see a slowdown in investment purchases due to the high price tags and low returns. There is also the looming uncertainty that the government may overstep to regulate investor activity. 

High investor actively is notoriously associated with the peaking of any market. They are usually the last ones in and the first ones out.  I am predicting that we will see a large sell-off from investors in these markets as they search for more profitable investments or look to hedge their investments. 

5) Home Price Growth Controls

As prices rise, housing experts around our nation are divided into two factions: those who think that housing prices will keep going up as we have seen for the past decade and those who believe that home prices have peaked in most markets. I side with the latter and predict that 2022 will be the year where controls are put into place to halt rampant price growth.  

Paul Krugman, chief economist, and Nobel peace prize winner retweeted an article regarding price controls as something truly stupid. In a follow-up response to that tweet, he mentions that as a last resort, there is a use for temporary price controls to break a wage-price spiral where there is weak economic growth. This is exactly what I see happening in the U.S housing market around tech hubs. 

Home prices have outpaced incomes, wages, and inflation for years now and it’s only a matter of time until something drastic happens to stop this trend. Although controls may be unpopular, the government may deem it necessary to prevent an even greater economic meltdown. I anticipate that many cities and state governments will put in place price caps or purchase restrictions to try and level rising home prices.

6) Inflation will still run hot

housing inflation

Inflation in America has been at the highest level within the last 40 years and I expect home prices to keep rising in the short term. This is mainly due to the government trying to subsidize the cost of purchasing with newly printed money created out of thin air to stimulate the economy. As a result, we witnessed bidding wars and saw record home price appreciation in 2021 as well as rising costs across all other sectors. 

Our government now plans to combat this inflation by subsidizing high-cost competition. Their strategy is to give money to smaller companies that are not as efficient as their larger counterparts and drive costs down as a result. Although this will spark competition, this type of stimulus has historically driven costs up down the road.

Essentially, we are fighting inflation with more inflation which does not work. The market will always find a way to incorporate the true worth of an asset into its price, and this will not be any different. The long-term consequences are certain to have altered the economy and housing market as a whole.

7) Buyer Demand is Dropping

Inflation will play a role in impeding home buying demand. This may be counterintuitive as many would think inflation would motivate people to invest in a home. The reality is that although inflation runs hot, wages are not keeping up and people are bringing in less money compared to the cost of living. Many borrowers are now choosing to rent instead of buying due to the uncertainty of the market.    

This is especially true for millennials who are already delaying homeownership due to financial instability, difficulty saving for a down payment/closing costs, and job insecurity. The combination of rising interest rates and inflation will cause many young buyers to back out or postpone their home-buying plans. Housing demand will drop as housing affordability becomes unsustainable.  

Predictions are just that, predictions. The housing market like many other aspects of the economy change and fluctuate with the climate, demand, and material costs. Knowing when to buy and when to sell is just as important. There are many different opinions from housing experts on what will happen in the year 2022. But all the data points to a slowdown occurring in 2022 and it will most likely continue this way for the next few years afterward. While there may still be some growth in certain areas of the country, it is likely that home prices overall will start to drop or stay flat in 2022. 

Find a Houston Real Estate Investor | Ricky Pok | Wabi Sabi Realty Group

As always, it is important to do your due diligence when deciding to work with someone regarding selling your house. I started Wabi Sabi Realty Group as a way to help distressed clients that I couldn’t do otherwise while I was working as a mortgage lender. I was always troubled about how we had to decline or pawn off clients just because they were facing a situation that became way too complicated.

At Wabi Sabi Realty Group, we buy homes in any condition for all cash, without any fees or inspections, and have years of experience in the Houston, TX market. We are also dedicated to seeing all transactions through and are willing to invest upfront on transactions to make sure there are no complications during the home selling process.

If you or someone you know may be dealing with an issue that may require a real estate investor, please do not hesitate to reach out. Even if you believe that a real estate agent may be better suited, still feel free to reach out and I can definitely put you in contact with the top agents in your local market. For more information about how we can assist you, please give us a call at 281-306-5721 or fill out the form. We will be happy to talk to you about how we can buy your house for cash and close at a time that is convenient for you

Areas We Serve Baytown, Conroe, Cypress, Deer Park, Galveston, Houston, Humble, League City, Missouri City, Pasadena, Spring and Sugarland, Texas.

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