Main Takeaways for Buyers
Main Takeaways for Sellers
- Low housing inventory and high demand will create a strong seller’s market, but not as intense as the peak of 2021.
- Home prices are expected to continue rising, but at a slower pace than last year.
- To avoid house buying FOMO (fear of missing out) and panic buying, know what you can afford and stick to a realistic budget.
- It will still be a strong seller’s market, but compared to 2021, there will be a smaller likelihood of a bidding war driving up your sale price.
- Get ahead of preparing to sell your home. Repairs and upgrades are taking longer to schedule and complete due to shortages of supplies and labor.
- All real estate is local. Some markets, or sub-markets, may be stronger or weaker than others.
- Work with a local real estate professional that knows your targeting market.
- The 2022 real estate market is shaping up to be something closer to normal.
As we approach the busy spring homebuying season, homebuyers are still likely to face an uphill battle, but it shouldn’t feel anything like 2021.
Home values skyrocketed by nearly 20% in 2021, according to the most recent data by the S&P Case-Shiller national index of home prices. While housing prices aren’t expected to drop this year, the increasing rate of prices should slow down.
Buyers may still face bidding wars, but they aren’t likely to be as intense or as frequent and sellers may not be as selective when choosing between offers. This year as a buyer, you may be able to be more flexible with the terms of your purchase contract, even if you aren’t necessarily getting a deal on the price.
If you’re planning on buying or selling a home during the spring 2022 homebuying season, here’s what four experts forecast the market to look like and what you can do about it.
WHAT TO DO ABOUT RISING MORTGAGE RATES
Today’s mortgage rates are about 1% higher than they were this time one year ago.
What this means for spring 2022 homebuyers is that 1% difference in mortgage rates can eat into your buying power compared to last year. Yet experts tend to agree not to time the rate market and buy when the time is right for you. Experts also point out that these 4%+ rates we are seeing right now are still considered favorable from a historical perspective. It was only a few short years ago when a “good rate” was around 5%.
‘More Like a Regular Spring Season’
Kerry Melcher, head of real estate at Opendoor, an online residential real estate platform
The seller’s market will continue into the 2022 spring homebuying season, but it should be less competitive for buyers than the previous spring, according to Melcher’s forecast. “The spring season is going to be a high demand season,” she says. But, not like 2021, where supply was wildly out of balance with the demand. Spring is typically the busiest time of the year for real estate, and Melcher says it’s going to look like a regular spring season. She says the number of homes for sale should increase compared to 2021 but is likely to remain lower than normal levels. Buyers will still face bidding wars, but not as often or as intensely as before. Melcher expects to see increased home price appreciation, forecasting single-digit home price growth, which would be a much slower pace than last year.
Mortgage interest rates could go up, which will impact your buying power, Melcher believes. “Understanding your financing is really important,” she says, meaning it’s essential to understand the upper limits of your homebuying budget. You may be able to qualify for a loan amount that is more than you’re comfortable with, and you don’t want to get caught up in a bidding war and end up with a higher-than-expected monthly payment.
For sellers, you’ll want to get ahead of any maintenance or upgrades you want to make before putting your house on the market, especially if it’s work you can’t do yourself. Supply chain issues and labor shortages have created a situation where renovations and repairs need to be scheduled farther in advance than before.
‘It Will Still Be a Good Market for Sellers’
Dean Baker, senior economist at the Center for Economic and Policy Research, an economic policy think tank based in Washington, D.C.
Homebuying demand will fall off somewhat but not plummet, Baker expects. ”It will still be a good market for sellers, but I don’t think anything like what it was earlier this year or in 2020.”
There was a rush of homebuying over the past 12 to 18 months, and those buyers are unlikely to be buying another home in 2022. Bakers does not anticipate a sharp drop in home prices in the next six months, but thinks real estate market fluctuations will be local. A larger percentage of the workforce has the opportunity to work from home, which may fuel competition in housing markets typically known to be more affordable, such as smaller cities and suburbs of cities.
What this means for homebuyers is to focus on the fundamentals of what makes a home purchase the right move for you. “Do it with your own timing.” If it makes sense with your current employment situation and family status, then that makes it a good time for you to buy. It’s a big risk to try to predict what the markets will look like years down the road. Even if prices were to fall, mortgage rates could rise, making a home purchase just as expensive.
‘Severe Shortage of Homes for Sale’
Odeta Kushi, deputy chief economist at First American Financial Corporation, a real estate services firm
The rate at which home prices are appreciating should taper off but remain positive through the 2022 homebuying season, according to Kushi. “It’s really the severe shortage of homes for sale relative to demand that will be the primary driver of continued positive house price growth,” she says. A large contingent of millennials are hitting the prime homebuying years, and for the last decade, there haven’t been enough homes built to meet demand.
Buyers looking to make a move this year will want to be well prepared ahead of time. Buyers may have a little more time compared to 2021 to make a decision, “but given that it will still be a seller’s market, they’ll still likely have to move fast to keep up with that market velocity,” Kushi says. Hone in on your home buying budget so you have a firm plan of what you’re willing to spend for a property that meets your needs. Buying a home isn’t just a financial decision. It’s also a lifestyle choice. Buying a home should make sense for your personal and financial situation.
‘Don’t Rush Into a Panic Situation’
Glenn Brunker, president of Ally Home, an online mortgage lender
The spring 2022 homebuying season will be a busy one, Brunker says. Healthy demand from homes and continued housing inventory shortages are likely to continue to drive the market.
At the same time, it shouldn’t be as heated as the peak frenzy of 2021. The rate of home price appreciation is expected to taper off. Instead of the 20% price growth we had in 2021, we may have “home price appreciations in the upper single digits, around 7%-8%, which historically is still a very, very strong year, but you know, not nearly as strong as ‘21.”
That means this year will still be a seller’s market. If you’ve been sitting on the sidelines hoping prices will drop, you may be disappointed, says Brunker. Since home prices appreciation is forecasted to grow, timing the market is not a recommended strategy, he said. That doesn’t mean you should stretch your budget to get into a house right now out of fear that buying a home will only get more expensive. “Don’t rush into a panic situation,” he says. Take the time to find a home you can afford for the long term, and that can comfortably fit into your lifestyle.
Preparing to Sell During the Spring 2022 Homebuying Season
The good news for sellers is that buyers looking for homes are expected to outnumber the homes for sale. It’s a good idea to work with a local real estate professional to determine an ideal listing price and if any improvements or repairs need to be completed before putting your home on the market.
If you plan on making any major changes or upgrades before listing your home, you’ll want to start as soon as possible. You’re going to need some lead time, says Baker. You’ll have a hard time getting the materials and getting someone to work for you in most parts of the country. Baker says most trade professionals such as carpenters, plumbers, and electricians have long backlogs of work.
When considering the best time to put your home up for sale, “you’d want to list when the demand for buyers is at the highest,” Brunker says. In many markets, that timeframe is from the end of February to May, when families are considering relocating after the school year.
Preparing to Buy During the Spring 2022 Homebuying Season
In the coming months, mortgage rates and home prices are forecasted to rise. This will cut into your buying power, so it’s important to begin preparing financially as far in advance as possible. Building your credit score can help you qualify for a lower mortgage rate. Save for a down payment, closing costs, and unexpected repairs and maintenance. Start looking into first-time homebuyer programs. These programs can provide thousands of dollars to put toward your down payment or closing costs if you qualify.
First-time buyers looking for more affordable homes may also face more competition. “One of the segments of the housing market that’s been tougher to break into is that starter home price point,” Kushi says. There is a large demographic hitting the prime first-time buyer age range, and builders have struggled to build enough affordable homes for that type of buyer.
With it still being a strong seller’s market, that means you’ll need to be patient as a buyer. You don’t want to panic buy and end up with a home purchase you have regrets about. You may want to be more flexible with where you live or what you buy. You may not find your dream home today, but a home that works for you right now can be a stepping stone to another home down the road.
Reprinted from time.com/nextadvisor/