Out-of-luck homebuyers who had hoped housing prices would finally drop in 2022 will be only partially satisfied in the coming year. It’s almost universally accepted that the market will cool, but not enough to see prices fall — only to rise by less.
“In 2022, house prices are set to rise by 11% in the U.S.,” said Kurt Walker, CEO of Cream City Home Buyers. “This is still a step down from the previous year’s price hike of 19.5%. However, predominantly the market will still advantage sellers over buyers. The market will remain competitive, with home sales predicted to increase another 6.6%.”
That, however, is just one trend shaping up as last year’s historic seller’s market continues into 2022.
Prices Will Rise Most Where Cost of Living Is Low
The urban exodus that defined so much of the pandemic will likely extend into 2022 as professionals continue to be liberated from the pricey metro areas where their jobs once compelled them to live.
“I expect to see inventory expand nationally, but we’ll see shortages in desired markets with buyers’ continued migration from the cities to the suburbs,” said Steve Johnston, founder and CEO of Ideal Agent. “This will be fueled, in part, by major corporations’ adoption of permanent work from home or hybrid work policies.”
As more city dwellers are able to leave high-priced urban centers without giving up their high-paying jobs, they’ll get to work pricing locals out of their once-affordable enclaves in rural America and the ‘burbs.
“For 2022, the competition amongst homebuyers in suburban and rural areas will be fierce,” said Chuck Vander Stelt, real estate broker and founder of Quadwalls.com. “Compared to 2021, homes in any geographic market in the lowest 30% bracket are likely to appreciate at 7% to 10%. However, homes priced in the range of 40% to 90% of a geographic market will appreciate 4% to 8%. Homes in the top 10% in any geographic area are likely to see the biggest hit in 2022. I am predicting those homes to be flat to plus-2% compared to 2021 home prices.”
Scorned Buyers Will Re-Enter the Market
Part of the reason that home values are expected to keep rising in 2022 — albeit by less — is that demand never fell, it just went into hibernation as buyers priced out of 2021’s red-hot market were forced into rentals.
Many of them still want to buy homes.
“Disenfranchised buyers from 2021, encouraged by still-low interest rates and stabilizing home prices, will re-enter the market, offering sellers new opportunities to maximize the return on their equity,” Johnston said.
Many others, however, will keep right on renting, sending prices up even further.
With inventory far too low to meet demand throughout 2021, rental prices soared all year long. In 2022, renters can expect more of the same.
“The main thing that will cause the rise in demand for single-family homes is the rising rent, which is projected to rise by around 7% in 2022,” said Robert J Fischer, broker and owner of the Robert J Fischer Team.
But single-family homes are only part of the story.
Multi-Family Sector Will Be Pandemic-Proof
From the very start of the pandemic, multi-family homes offered investors better returns and less risk than almost every other sector in the real estate industry. Nothing appears to be changing in 2022.
“The multi-family sector remains very resilient to the financial impact of the COVID pandemic, as it was for the past two years during the initial outbreak,” said Kip Sowden, CEO of RREAF Holdings, a private real estate investment and development firm. “We do not believe the current Omicron variant poses an increased risk to investments in this asset class, as the original investment thesis holds up to the current variant.”
Sowden sums up that thesis with the following remarks on two key trends:
- “Multi-family residential complexes tend to maintain high occupancy during the pandemic because residents still have to live somewhere — unlike office buildings, retail centers or hotels that may see reduced occupancy due to social distancing measures.”
- “The middle America demographic profile continues to be eligible for certain workplace and government subsidies supporting the payment of rent as a basis for avoiding further escalation of the pandemic as a result of evictions.”
“While these two key factors do not by themselves guarantee anything, they explain the resiliency of the multi-family sector, and doubly so in the Sun Belt region,” Sowden said.
Remodeling Sector Will Ride Wave
With sale prices and home values at an all-time high, homeowners are sitting on mountains of equity — and some of that newfound wealth will go right back into the homes that generated it.
“The remodeling sector is going to experience strong growth during 2022, with homeowners enjoying wealth gains coming from rising home values,” said Ben Fisher, luxury real estate specialist with the Fisher Group. “More homeowners will concentrate on adding space, improving energy efficiency and increasing the resiliency of the housing stock.”
The Climate Change Factor
Climate change is already reshaping America’s real estate landscape — and not only by the sea. But, up until now and looking forward to 2022, buyers just aren’t considering global warming when deciding where to put down roots.
“Despite an increase of wildfires, floods, hurricanes and tornadoes, the majority of homebuyers don’t have climate risk on top of their criteria list yet,” said Ruth Shin, founder and CEO of PropertyNest.
Shin cited a recent PropertyNest survey that found that about 64% of homebuyers in the U.S. don’t factor in climate change when selecting a property. Soon enough, however, they might be forced to consider it, whether they like it or not.
“This could change if mortgage lenders risk-assess properties in terms of climate change and decide they won’t give mortgages for certain properties that are in high-risk areas,” Shin said.
About Real Estate Intelligent Marketing (REIM):
REI Marketing is an innovative Real Estate Marketing Company that offers distinctive real estate services to developers and multifamily investors. We are a vibrant, dedicated team of industry professionals with international experience in marketing and multifamily investment.