As rising inflation and mortgage rates bring U.S. housing demand back from the chaos of 2021, Realtor.com’s updated 2022 forecast predicts inventory will grow double-digits over 2021, offering buyers a better-than-expected chance to find a home.
New data finds that home sales will hit the second-highest level in 15 years —trailing the 2021 pace— as rising incomes combined with higher housing costs continue to present a mixed bag of affordability issues.
The updated forecast anticipates a summer break from the intense pace of home sales that will provide space for active listings to grow at a faster year-over-year pace than originally projected (+15.0% vs. +0.3%). Combined with returning seasonality and builders ramping up production, these trends could lead to a refresh of the housing market by as early as this fall.
“Financial conditions have shifted in a big way since the end of 2021 and the housing market is adjusting accordingly,” said Danielle Hale, Chief Economist for Realtor.com. “As Americans grapple with higher prices for everyday expenses while today’s buyers face housing costs that are up 50% from a year ago, recent home sales data shows some are taking a step back from the market.”
While Americans have faced a whirlwind of changes so far this year, a changing economic landscape is the biggest driver of updates to Realtor.com’s 2022 housing forecast. Inflation has made a more significant and long-standing impact on real estate markets than was anticipated six months ago, and is reflected in trends like rapidly-climbing mortgage rates.
Combined with record-high home listing prices and rents, home shoppers are feeling the strain on their budgets. As a result, buyer demand has been softening this Spring from its early 2022 surge.
Higher costs will continue to challenge 2022 buyers, as mortgage rates have already far surpassed Realtor.com’s earlier prediction of 3.6% and home sale price growth year-over-year is expected to more than double its originally-forecasted pace (+6.6% vs. 2.9%). At the same time, Realtor.com’s updated projection for year-end 2022 mortgage rates (5.5%) anticipates that rates have largely adjusted for the bulk of expected 2022 Fed hikes.
The rapid shifts in the economic landscape have some silver linings when it comes to housing affordability. With the unemployment rate near 50-year lows, employers are feeling the pressure to compete for talent, driving wage growth upwards from earlier year-over-year predictions (+3.8% vs. +3.3%).
The competitive labor market may also give some buyers more negotiating power on workplace flexibility, creating more opportunities to relocate to relatively affordable housing markets. According to data from Q1 of 2022, some 40.5% of Realtor.com home shoppers viewed listings located outside of their current state —up from 33.4% in 2020.
“Our updated 2022 forecast anticipates that demand will continue decelerating through the summer, providing breathing room for the inventory recovery to accelerate,” said Hale. “As a result, this fall could be an opportune time to find a home – for both first-time and repeat buyers alike. Still, preparation will be key throughout 2022, as it continues to be a seller’s market and asking prices remain high. For buyers who choose to wait until later in the year, take that time to assess your budget so you’re set up with a strong financial footing whenever you’re ready to move forward.”
Overall, the updated 2022 forecast reflects a housing market that is charting a path toward more sustainability, relative to the past two years of ups and downs. Home sales are still projected to hit a near record-high pace in 2022 despite trailing 2021 levels (-6.7%), and their original forecast (+6.6%), while the projected homeownership rate will hold roughly steady (65.6% vs. 65.8%).
For many Americans, housing affordability will remain a significant obstacle as demand continues to outmatch supply, although by a smaller margin than in recent years.