Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022.
Home sales have shined over the past two years since the pandemic’s start as a perfect storm of factors created the feverish market conditions that captured headlines throughout 2020 and 2021.
With weeks left in the year, real estate experts are split on their sales expectations for 2022.
“We are expecting to see modest gains in home sales, and that momentum is likely to carry forward into 2022,” says Danielle Hale, chief economist at realtor.com®, which expects home sales to grow by 6.6% next year.
Hale notes that 2021 surprised the industry with the momentum the market was able to maintain, following a lull in sales activity during the pandemic in 2020. She says the fall of that year and the winter of 2021 were busier than usual because of a lot of “make-up activity.”
Even with rising rates and home prices cooling the market in the fall, Hale notes that sales activity remains above pre-pandemic levels.
“We saw a bit of a slowdown in the market depending on which metric you are looking at in the early part of the year, but since then, we’ve seen sales—existing-home sales at least—stabilize and even start to pick up in recent months,” Hale says.
Based on recent reports from the National Association of REALTORS® (NAR), this year outpaced 2020 by 7%, with six million home sales projected by the end of 2021.
Recent reports from realtor.com® project home sales to hit 16-year highs next year as strong demand persists, particularly among millennials—a segment with more than 45 million people in prime first-time home-buying ages.
While some markets will see home sales declines, realtor.com® suggested that declines are likely to be modest, with many areas still slated to have the second-highest sales level in the last 15 years—bested only by 2021.
National Association of REALTORS® (NAR) experts aren’t as optimistic about 2022.
“I think the sales activity will be shaved modestly,” said Dr. Lawrence Yun, NAR chief economist and senior vice president of Research, during a virtual interview at this year’s “Bold Predictions: 2022 Real Estate Market Outlook.”
Yun suggested that the market will see a 2% reduction in sales next year as mortgage rates increase. According to a recent NAR report, that equates to roughly 5.9 million sales.
Overcoming Persisting Hurdles
Industry pundits agree that next year’s sales performance hinges on several factors yet to be resolved in the housing market. Inventory, or lack thereof, continues to pose the biggest hurdle for the market next year.
During a recent webinar hosted by MarketWatch, Mark Fleming, chief economist for First American Financial Corporation, suggested that buyers in the market can expect “more of the same” from a supply perspective.
The supply and demand imbalance in the housing market has been well-documented, but Fleming noted that the market also deals with the fact that inventory is rapidly being purchased.
“You can’t buy what’s not for sale, and that is the fundamental challenge for the first-time buyer in the market today,” Fleming said.
Fleming also stated “what’s also happening is it’s tending to be the musical chairs amongst homeowners who are all selling to each other, and it’s the first-time buyers that are being challenged with trying to find something to buy.”
Aside from lagging new construction, 2021 also saw a slowdown in people willing to list their homes, which Anthony Lamacchia, CEO of Lamacchia Realty, said added to the dearth of inventory in the market that helped drive prices sky-high during the summer.
During RISMedia’s 26th Annual Power Broker Forum, held during the REALTORS® Conference & Expo in November, Lamacchia forecasted “bidding wars and frenzies from coast to coast” to hit the market as early as this winter and carry over into 2022.
While he was hopeful that more people would list their homes next year, he noted that slowing sales wouldn’t harm the market.
“Once we get to the winter and inventory is down, you’re going to see bidding wars go wildly again, but I’m hoping that we come out of it quicker by spring,” said Lamacchia.
Housing affordability is another issue that could impact sales, as home prices rose nearly 20% over the past year. While the double-digit surges have come and gone in 2021, experts have forecasted price appreciation to persist next year.
“The fact that we expect home prices to continue to rise on top of the highs that we saw in 2021 is because there aren’t many homes for sale and there are still a lot of interested buyers, and the way the market solves that imbalance is by pushing prices higher,” Hale says.
Rising mortgage rates in 2022 will also add another wrinkle to the affordability mix that is poised to strain more buyers, particularly younger and first-time buyers in the market that are being priced out.
That’s been the case in Boise, Idaho, according to Yuri Blanco, broker/owner of RE/MAX Executives.
The midwest city has grown into a hotspot for millennial buyers looking to capitalize on more affordable options this year, but Blanco indicates that market conditions have shifted.
“Pricing here in our area was super affordable, and the way they’ve gone up has kind of put a halt on ,” Blanco says, adding that she has had buyers from California that were shocked at the price similarities between the coastal state and Boise.
She expects the rise in rates and prices to slow down first-time buyers, which she says have had to extend their search further outside of the city to find lower prices.
“They are already strapped most of the time with down payment and closing costs and what they can qualify for,” Blanco says. “With interest rates driving up, that’s going to increase their mortgage payment and their affordability prices even more.”
Blanco is confident that 2022 will still be a strong year for the market despite the challenges.
A recent report by realtor.com® supports that notion, claiming that the midwest city will see a 12.8% growth in sales as one of the top-three housing markets next year along with Salt Lake City, Utah, and Spokane, Washington.
Blanco suggests that educating clients will be a critical component of her company’s preparation for next year. She says she encourages her agents to put buyers and sellers at ease about rising rates and home prices.
“They need to keep remembering that even though it doesn’t look like it will go up as quickly as was in the past, they still will likely have equity. More of a normal range, though,” Blanco says.
She recommends a similar approach with sellers who may be fearful that the multiple-offer frenzy from 2021 will die down next year.
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news ideas to jgrice@rismedia.com.
