What to Expect From the Housing Market in 2022

With an ever-growing number of households throughout the U.S., homebuyer activity has highlighted the housing shortage across the U.S. in 2021 – in particular for homes at entry- and mid-level price ranges. With supply chain issues, labor shortages and regulatory practices further slowing new home construction, houses aren’t being built fast enough to meet demand, and home prices are rising fast as a result.

Looking ahead at the next year, homebuyers, sellers, renters and investors can expect some more of the same when it comes to continued high demand, with some return to seasonality and a rise in interest rates that may have a mild impact on real estate transactions.

Here are a few housing market trends shaping up for 2022:

Here are experts' housing market predictions for buyers, sellers, renters and new construction in 2022.

Buying

In recent memory, mortgage interest rates have been at or near historic lows, even with some fluctuation. “They have gone a little bit up, then go back down below 3%,” says Miriam Moore, division president of default services for mortgage solutions company ServiceLink. As of Dec. 9, the average mortgage interest rate for the 30-year, fixed-rate mortgage is 3.1%, according to Freddie Mac.

In 2022, expect interest rates to rise somewhat – but that doesn’t mean they’ll skyrocket. The Federal Reserve has signaled intent to raise interest rates during the year to combat inflation.

While an increase in mortgage interest rates could squeeze out the homebuyers who are on the cusp of being able to afford a home purchase, interest rates will likely remain low compared to historic mortgage interest rates, like the 18.63% average in October 1981.

Additionally, interest rates won’t rise in a vacuum. “It’s important to note that the same thing contributing to an increase in mortgage rates … leads to an increase in wages,” says Odeta Kushi, deputy chief economist for First American Financial Corporation, which provides title insurance and risk solutions services for real estate transactions. Other economic factors will likely come into play that can help assuage affordability issues for many homebuyers.

That’s not to say affordability won’t be a concern for many, as home prices will continue on an upward trajectory, if at a slower pace than in 2021. Real estate information company Zillow predicts home prices will end 2021 a whopping 19.5% higher than the end of 2020.

“It’s been literally a complete sprint from top to bottom,” says Mike Miedler, president and CEO of real estate brokerage Century 21. “I do think here in the U.S. we’re in for a pretty long marathon from an overall housing perspective.”

Zillow predicts continued rapid price growth for 2022, though slower than the previous year, at 13.6%. A part of this is likely due to the return to some more traditional patterns in the real estate market, including the seasonality of heightened interest in spring and summer, with waning homebuyer activity and fewer home sales toward the end of the year.

“We will see some more seasonality, but certainly demand will remain high, I think, throughout 2022,” Kushi says.

One factor that keeps pushing home prices up is lack of homes on the market – especially at entry- and mid-level price points that first-time homebuyers can afford. “We truly don’t have enough supply in the first-time homebuyer market,” Miedler says. A lack of incentive for many sellers and slow movement in housing construction means buyers are competing for fewer homes on the market. While there’s room for more coming on the market in 2022, it’s tough to tell when or if it will serve as a relief for buyers.

Selling

One reason why a lot of sellers haven’t jumped at the opportunity to sell their homes – and why it’s not likely in 2022, either – has to do with the low interest rates that made refinancing a smart move within the last two years. “A lot of these existing homeowners have locked into rock-bottom rates – rates below 3%,” Kushi says.

While low inventory has increased prices, fewer active sellers and fewer home sales puts pressure on the entire real estate industry. “The single biggest issue we have with our 150,000-plus real estate professionals across the globe is working with potential buyers who just can’t find the inventory,” Miedler says of Century 21’s experience in the last couple years.

A lack of inventory is a boon for many homeowners who do choose to sell their homes, as they benefit from eager buyers and rising prices. Though, it’s not a time to get greedy. Appropriate pricing and reasonable expectations are needed, especially as seasonality returns to the housing market.

Home sellers should also have a plan before placing their home on the market. By selling your current home, you’re likely looking to purchase another, which puts you among the competitive buyer atmosphere as well. “The question they’re going to ask themselves is, ‘Where do I go from here?’” Miedler says.

One factor potentially putting more existing homes on the market is the return of foreclosure activity. Moore says she expects what will feel like a surge of foreclosure and auction activity in 2022, largely because there were so few foreclosures in 2020 and 2021 as a result of moratoriums and other policies in place to halt foreclosures almost entirely.

While there will be an uptick in foreclosures, it won’t be anything like the housing crisis in 2008, Moore says. “At that time the economy wasn’t as strong as it is today, and there was not equity in the property,” she says. The homeowners most likely to be affected are those who were struggling to make mortgage payments even prior to the start of the pandemic.

As a result of the low inventory of available homes, Moore predicts foreclosure sales and auctions will see more widespread interest from individual buyers than may have considered the option in the past.

Renting

In 2021, the rental market rebounded from a rough start to the pandemic, which saw many people leaving apartments and seeking more space through homeownership. Rental demand has largely returned to major cities, and continues to exist throughout suburban areas as well. Rental information company Zumper reports that thus far in 2021, the national median rent for a one-bedroom apartment rose 12.1%, and two-bedroom rents increased by 13.2%.

Similar to home prices, the rapid rise in rent indicates high demand, but sustaining the same rent increase is unlikely in 2022. “I don’t think we’ll see another year of 12% to 15% rent growth next year,” says Anthemos Georgiades, co-founder and CEO of Zumper.

Also impacting the rental housing market is the end of the eviction moratorium established by the Centers for Disease Control and Prevention in 2020 in response to the pandemic, which ended in August after the Supreme Court ruled the extended moratorium unconstitutional.

Thus far, the end of the moratorium has not led to the mass evictions that many people feared, but eviction numbers have been “climbing month to month,” Georgiades says. However, he notes that they remain below pre-pandemic eviction rates.

It’s likely that eviction rates will return to their pre-pandemic levels in 2022, especially as demand for rental housing continues to rise in many parts of the country. However, state and local policy will likely play the biggest role in how eviction is addressed going forward, Georgiades says.

New Construction and Development

The rate of new housing construction has been behind the pace of new household creation for years, plagued by local zoning issues and labor shortages that began in the Great Recession. The pandemic added further materials shortages, rising prices and supply chain-related delays.

As a result, construction is slow to ramp up and ease housing demand. “We’d have to double the pace of putting up new single-family homes,” Miedler says.

Builders are feeling more confident despite the ongoing issues, however, according to the National Association of Home Builder’s November builder confidence survey. Low housing inventory and strong demand appear to be the biggest drivers for confidence going into the New Year.

While supply issues are prevalent now, they are expected to improve eventually, and builders and developers are prepared to get working with approved permits once materials are available. “It’s really hard to say when those bottlenecks will start to ease, but I will say there is a backlog of (new construction) homes that may come to market next year as those bottlenecks start to ease,” Kushi says.

Construction isn’t just preparing for single-family homes. When it comes to multifamily housing for rental apartments, “there is an enormous amount of development coming,” Georgiades says.

The U.S. Census Bureau reports that as of October, permits were approved for nearly 1.5 million privately owned housing units thus far in 2021, many of which are likely to be built in 2022, barring other complications.

While new construction is often on the higher end of local housing price and rent ranges, Kushi stresses that in order to better meet the existing demand, a wider range of price points are needed among newly available housing. “We just need building across the price spectrum,” Kushi says. “Particularly more so at the lower price tiers – the starter home.”