Housing Trends: Home Purchasing Impact 2022
Housing Trends: High Prices and Limited Inventory Continue to Impact Home Purchasing Ability in 2022
The 2021 housing market saw record-breaking home price growth and fierce competition. Wild demand driven by historic low interest rates coupled with limited inventory made conditions ripe for a continued. Home values soared at a record-setting pace, up 18.1% on average from November 2020 to November 2021 with places like Phoenix seeing upward of 30% appreciation (Core Logic 2021). And over the last five years almost every metropolitan area experienced significant home price growth from Boise, ID at 115% to Spokane, WA at 84% to Tampa, FL at 67% growth since 2016 (FHFA 2021). According to Realtor.com, the median list price in the U.S. topped 375,000 in December, 2021. By Q421, the share of buyers who could afford less than half the homes in their markets reached a staggering 76% (NAHB Now 2022). Housing supply dropped to the lowest it’s been in decades. Compared to 2020, there were 20% fewer homes available in 2021 (Lee 2022).
While 2021 was a record-breaking year for U.S. home price growth, for many prospective buyers the hot housing market is difficult as affordability continues to recede. Rising inflation will most likely lead to increases in mortgage rates, further eroding affordability and purchasing power. Since Q221, the number of adults planning to buy a home in the next year is down two percent. The number of first-time buyers planning to buy in the next twelve months is also down two percent. And there were five percent fewer active prospective buyers in the market by December 2021. These metrics demonstrate that limited supply and skyrocketing prices are leading some would-be buyers to postpone homeownership (NAHB Now 2021). Rising prices, brutal competition, lack of inventory and now, rising interest rate are discouraging many from engaging in the buying process.
So what does the future look like? While we don’t have a crystal ball, we expect 2022 to be similar to 2021—low inventory, outrageous, prices, high demand. In other words, it will remain a strong sellers’ market that leaves many would-be buyers locked out of the market for the foreseeable future.
We’ve been underbuilding for decades. “Since the Great Recession, there is a cumulative shortage of 1.35 million new single-family homes permitted in the 35 largest U.S. housing markets. That is 2.7 years’ worth of permits at today’s homebuilding rate” (Zillow 2021). In the 1970s, we were building 425,000 affordable homes per year. That number has dwindled to approximately 60,000 affordable units today. The lack of affordable homes is the single biggest challenge to homebuyers. So, expect to see bidding wars and other aggressive tactics remain in place for buyers.
Buyers can also expect continued home price growth. Experts at Zillow forecast 11% home value growth in 2022 with the Sunbelt region leading the way. New construction prices will also remain high due to the volatile cost of building materials and a severe labor shortage. All building materials, from copper to steel to concrete, have jumped in cost but lumber hit astronomical prices with an all-time high of $1,670 per thousand board feet in May and ending the year over $1,000 (Campisi 2021).
As inflation continues to creep, we also expect interest rates to rise. In November 2021, the Fed reduced the monthly volume of Mortgage-Backed Security and Treasuries purchases, putting upward pressure on interest rates. The National Association of Homebuilders forecasts that rates may reach 4% by 2023 as a result further reducing affordability (Deitz 2021).
Today’s housing market is particularly difficult for Millennials, first-time buyers and low-to-moderate-income people to purchase a home. Classic supply and demand have been accelerated by low interest rates and a global pandemic. While the current boom is not a “bubble” akin to the frenzy of the rise and crash in the market a decade ago, it has further exacerbated the affordable housing crisis in our country. “Imagine that you’re a low- or moderate-income person, a college graduate saddled with debt, a working-class person of color,” says Ed Gorman, Managing Director, NCRC Housing Rehab Fund. “There is a real sense of hopelessness. Some folks don’t even have a shot at owning a home in the foreseeable future in this market.” Broad swaths of the population, especially BIPOC communities, first-time buyers, and Millennials, are locked out of the market, leaving millions of Americans in a less secure financial position and widening the racial wealth gap. While the market is booming for many sellers, too many Americans are left behind when it comes to homeownership and the ability to build generational wealth.
Campisi, Natalie. “Housing Market Predictions 2022: Will Prices Drop?” Forbes Advisor, Forbes Media, LLC, 28 Dec. 2021, https://www.forbes.com/advisor/mortgages/housing-market-predictions/.
Dietz, Robert. “Federal Reserve: Taper Begins: Eye on Housing.” Eye On Housing | National Association of Home Builders Discusses Economics and Housing Policy, National Association of Homebuilders, 3 Nov. 2021, https://eyeonhousing.org/2021/11/federal-reserve-taper-begins/.
“U.S. Home Price Insights.” Economy Team, CoreLogic®, CoreLogic, 4 Jan. 2022, https://www.corelogic.com/intelligence/u-s-home-price-insights/.
Federal Housing Finance Authority, 2021, House Price Changes in Largest MSAs , https://www.fhfa.gov/DataTools/Downloads/Documents/HPI/HPI_AT_Tables.pdf. Accessed 25 Jan. 2022.
“Higher Prices, Lower Availability Affecting Home Purchasing Decisions: Nahb Now: The News Blog of the National Association of Home Builders.” NAHB Now | The News Blog of the National Association of Home Builders | NAHB Now | The News Blog of the National Association of Home Builders, NAHB, 25 Jan. 2022, https://nahbnow.com/2022/01/higher-prices-lower-availability-affecting-home-purchasing-decisions/.
Lee, Alexandra. “Real Estate Market Update: Trends Throughout COVID and Beyond.” Webinar. Real Estate Market Update: Trends Throughout COVID and Beyond, 19 Jan. 2022, https://files.constantcontact.com/15b58e57801/cef0baed-d6f2-4bf1-9f7b-6a19f7fe4786.pdf. Accessed 19 Jan. 2022.
Speianu, Sabrina, and Danielle Hale. “December 2021 Housing Market Trends Report – Realtor.com Research.” Realtor.com Economic Research, Realtor.com, 4 Jan. 2022, https://www.realtor.com/research/december-2021-data/.
Tucker, Jeff. “Playing Catch-up: Putting the Recent Home Building ‘Boom’ in Context.” Zillow, Zillow.com, 9 Dec. 2021, https://www.zillow.com/research/housing-permits-shortfall-2021-30373/.
“Zillow’s Hot Housing Takes for 2022.” Zillow.com, Zillow, 7 Dec. 2021, https://www.zillow.com/research/zillow-2022-housing-predictions-30394/.