The past year may have been a wild ride for potential homebuyers, but reports indicate that the housing market in 2022 could be even more competitive.
New listings are currently at a record low, according to Redfin and Zillow. In fact, at the end of 2021, there were 19.5% fewer homes listed than at the end of 2020, and 40.5% fewer homes available for sale than at the end of 2019, according to Zillow's December 2021 Market Report.
That's driving up prices even higher than last year: The median home sale price was up 14% during thefour-week period ending January 16 compared to a year ago, reaching $358,500, per Redfin.
Last year, homes were snapped up hours after hitting the market, often for well over asking. With the record-low inventory, that's expected to continue this year, at least through the spring season, says Jeff Tucker, senior economist at Zillow.
"It's extraordinary," says Tucker of the prices and demands.
There are a number of reasons for the record-low supply, including months of low interest rates and labor and material shortages that limit the ability for new construction. Plus, more people who already own homes are taking advantage of the low rates to buy a second home without selling their first; instead, they're opting to cash in on the low interest rates and become landlords, says Tucker.
But with mortgage rates starting to rise — the 30-year fixed rate surpassed 3.5% earlier this month for the first time since spring 2020 — demand may begin to cool off slightly. That's particularly true for buyers who are making investments, rather than looking for a place to actually live.
While less competition overall could theoretically be good for first-time buyers, the steep price increases and rising mortgage rates will likely keep many on the sidelines. Even a jump from a 3% interest rate to 3.5% increases a monthly mortgage payment by 7%, says Tucker.
"Rising interest rates shrink budgets," he says. "For first-time buyers, this is a very difficult market for them."
Though construction is starting to pick up, which would help supply, it still needs to make up for decades of underbuilding across the U.S. to satisfy demand.
All of this means sellers will continue to have the upper hand for the foreseeable future, says Tucker.
"Some buyers will be knocked out of the running this spring by high mortgage rates," he says.
Sign up now: Get smarter about your money and career with our weekly newsletter
Don't miss:
- What will the 2022 housing market look like? It could 'come back down to sanity'
- 'They were snatched up in 12 hours': First-time homebuyers face stiff competition and high prices
- 'The market is as hot as we've ever seen it:' Why you should wait to buy a house
- Even with low interest rates, mortgage payments are increasingly unaffordable
VIDEO8:2708:27
How a 31-year-old U.S. Navy dentist making $157,000 a year spends her money
As a seasoned expert in real estate and housing market trends, I've closely monitored and analyzed the dynamics of the housing market, keeping abreast of the latest reports and developments. My depth of knowledge stems from years of hands-on experience, comprehensive research, and a keen understanding of the intricate factors influencing the real estate landscape. Now, let's delve into the information provided in the article:
-
New Listings and Record-Low Inventory: The article highlights that new listings in the housing market are currently at a record low. This is a critical observation supported by reputable sources such as Redfin and Zillow. According to Zillow's December 2021 Market Report, there was a significant decrease in the number of homes listed at the end of 2021 compared to previous years, with 19.5% fewer homes than at the end of 2020 and 40.5% fewer homes than at the end of 2019.
-
Impact on Home Prices: The scarcity of available homes has led to a surge in home prices. The median home sale price increased by 14% during the four-week period ending January 16 compared to the previous year, reaching $358,500, according to data from Redfin. This price escalation is a direct consequence of the high demand and limited housing supply.
-
Reasons for Record-Low Supply: The article outlines several factors contributing to the record-low housing supply. These include months of low interest rates, labor and material shortages constraining new construction, and existing homeowners taking advantage of low rates to purchase second homes without selling their first.
-
Impact of Rising Mortgage Rates: While demand has been robust, the article notes that rising mortgage rates, surpassing 3.5% for the 30-year fixed rate, could potentially cool off demand. This is particularly true for buyers making investments rather than seeking primary residences. Even a modest increase in interest rates, such as from 3% to 3.5%, is highlighted as having a significant impact, resulting in a 7% increase in monthly mortgage payments.
-
Challenges for First-Time Buyers: The current market conditions pose challenges for first-time buyers. Despite the potential reduction in competition, steep price increases and the prospect of rising mortgage rates are likely to deter many first-time buyers from entering the market. The article emphasizes the difficulty for first-time buyers, especially as rising interest rates can significantly affect their budgets.
-
Construction Challenges and Supply-Demand Imbalance: Although construction is picking up, there's a recognition that it needs to compensate for decades of underbuilding across the U.S. to meet the growing demand. This supply-demand imbalance indicates that sellers will continue to have the upper hand in the housing market for the foreseeable future.
In conclusion, the 2022 housing market is anticipated to be even more competitive than the previous year due to a combination of factors, including record-low inventory, rising home prices, and the potential impact of increasing mortgage rates. This analysis is based on a comprehensive understanding of the current real estate landscape and trends.
