What’s Next for The New Year? Fantastic Market Constrained By Climbing Rates and Supply
Predictions are tough, we all learned that lesson lately. But buyers and sellers need to make decisions based on something, so here goes:
Prediction #1:
Mortgage rates will rise to 3.7%, slowing price growth. We expect 30-year-fixed mortgage rates to rise slowly from around 3.25% to around 3.7% by the end of 2022, due to lingering inflation. By winter, higher mortgage rates along with already high home prices will likely slow annual price growth down to around 3%, which represents a steep drop from the record 20% or so growth in 2020. First-timers will have a better chance in this market.
Prediction #2:
New listings will hit a 10-year high. In 2022, new listings will surpass the 2018 high of 7.6 million homes, setting a new record going back to at least 2012. As the market becomes more balanced, homeowners will find it less daunting to list their home while looking for a new one to buy. The end of double-digit price growth will also encourage more homeowners to finally cash-out. This increase in listings of existing homes will coincide with a slight increase in listings of newly constructed homes. A note on new construction: builders face a lot of roadblocks, which will keep supply from reaching its full potential next year. Labor shortages, lot delays and supply chain challenges are all making it harder and more expensive to build new homes. New home inventory should increase from 2021’s bottom, but we anticipate the market will remain undersupplied. Entry-level home supply in particular will remain extremely constrained.
Prediction #3:
Rents will increase by 7%. Rents will increase 7% by the end of 2022, more than double the predicted year-over-year growth in home prices of 3%. Demand for rentals will be strong for several reasons. The end of mortgage forbearance will cause many homeowners to sell and rent instead. As the pandemic subsides, more people will choose to live in cities where it is more common to rent. Additionally, the strong labor market will cause more people to move to a new city, and many movers will want to rent so they can get to know their new city before they buy. Since vacancy rates are already at record lows, increased demand for rentals will almost certainly push rents to new heights.