Providing sensible predictions is a near-impossible task, especially regarding the inherently volatile housing market. Nevertheless, with the help of a few trends and a sprinkle of common sense, establishing what the future holds for those involved in the real estate business becomes much more manageable.
As many businesses decide to embrace the remote work model in the post-COVID-19 era, numerous new housing opportunities will open in 2022 — primarily in the suburbs. However, not everyone might be able to take advantage of them, as home prices are believed to surge to record-breaking heights. As a result, buyers can expect tight competition for properties to continue in the coming year.
Furthermore, experts predict that historically-low mortgage rates will encourage many young buyers to take this type of loan. Consequently, it might lower both the average monthly payment and the total lifetime cost of a mortgage, increasing the advantages of existing homeowners.
Here is how the real estate market might shape up in 2022!
High Demand for Condos and Townhouses
The first major change is that demand for condos and townhouses will skyrocket. The real estate experts from The Pattisall Real Estate company says that the reason for that shift is simple – more people are working from home, which means that they need more space than an apartment can provide.
A number of professionals would love to relocate to a suburb, but mortgages in these areas are usually expensive. However, with so many people working remotely, suburbs are in high demand, even if property prices skyrocket. As a result, developers are trying to address this issue by building more condos and townhouses, which tend to be cheaper than single-family homes.
How Will Supply Keep Up With Demand?
This is where supply struggles to keep up with demand come into play. While some builders are able to build enough units to satisfy demand, the price of land makes it difficult to achieve for many other builders. Even if they manage to build what they can afford, they still need to find buyers willing to buy their new development.
Unfortunately, this might be easier said than done, as lower-income buyers might struggle to compete with wealthy investors who are ready to pay any price for a condo or townhouse in a desirable neighborhood that they can rent out. As a result, there is a possibility that affordable housing will become scarce in the future, especially for those working in low-paying jobs or millennials just starting their careers.
Lower Home Prices in 2022?
However, the situation might not be as gloomy as it seems at first glance. In fact, homeownership might become more accessible thanks to historically-low mortgage rates offered by banks and financial institutions in 2022.
For example, the typical 30-year fixed rate mortgage in February 2017 was 4.17%. In 2022, it even dropped to 2.81%. While such interest rates cannot be considered cheap by any means, they are still lower than what we saw during the housing bubble of 2008. As such, homeownership could become more appealing to millennials who have been struggling with student debt since graduation and haven’t been able to save much money until recently.
Nonetheless, it is important to note that experts believe the housing market still has a lot of room for improvement. While millennials and low-income buyers will have better chances in the future due to lower mortgage rates, the middle class needs to have access to better mortgages as well.
Even if the American Dream might become more affordable in 2022, it is likely that it will remain out of reach for some people. For example, young professionals working in top-tier cities with skyrocketing rents might decide to move to cheaper areas like the suburbs or small towns.
In other words, while it might be easier to get a mortgage in 2022, not everyone will be able to pay it off either way. It is also worth noting that many homebuyers struggle with high down payments today, so they may opt for renting instead of buying a new place.
What Will Happen to Home Prices?
Even though many experts believe that we won’t see a nationwide rise in home prices until 2023 at the earliest, we are already starting to see stronger demand for homes. As such, experts predict that this trend will continue in 2022.
Furthermore, homebuilders are expected to take advantage of historically-low interest rates and high demand for homes by building more houses. The result is that average home prices are likely to rise significantly over the course of several years — especially in desirable neighborhoods with excellent schools and access to public transportation.
Based on current trends, experts predict that it might become even more expensive to live in major metropolitan areas like New York City and San Francisco. Even relatively affordable cities like Seattle will see higher home prices due to increasing demand, especially among millennials who want an urban lifestyle but don’t have much money.
However, this trend might change if major cities start taking steps aimed at curbing price growth and making homeownership more accessible for everyone by building more affordable homes. On the other hand, experts think that smaller cities are not likely to see much price growth because demand for housing is already high and rising interest rates only hurt potential buyers who cannot afford a down payment.
How Will This Affect First-Time Homebuyers?
As mentioned above, rising home prices make homeownership less appealing for first-time buyers who can’t afford a down payment. As a result, many millennials will decide to rent instead of buying a new home.
In fact, as Bloomberg mentioned in a 2016 article, “the share of renters between the ages of 18 and 34 jumped from 62.5 percent in 2006 to 71.6 percent in 2014”. At the same time, experts predict that many older buyers will continue buying homes until they retire. Unfortunately, this means that homeownership might become available only to those with enough money and good credit scores – at least until we see major changes in the way we finance homeownership.
Although the housing market will experience some changes in the future, it’s unlikely that we will see a major economic downturn anytime soon. In fact, experts predict that the number of homeowners in 2022 will slightly increase. This means that there will be more homebuyers in the coming years.
Furthermore, chances are good that tight competition for homes will persist as well. However, this isn’t necessarily a bad thing because if you can afford a down payment on your own home, you can actually make money on your investment. In fact, it is why buying a house is such an attractive investment opportunity for many people.
The article is written by Przemysław Puternicki