According to a recent Forbes article, the long running housing boom will level off toward the end of 2022 or early 2023. At that point, we may see rising mortgage interest rates and the end of catch-up activity related to suppressed buying trends during the pandemic.
The housing boom has created lucrative markets for sellers and listing agents. Often, bids exceed asking prices and buyers find themselves in fierce competition with one another. Despite the intense activity, the chaotic real estate activity of 2021 does not represent a bubble.
In a bubble, there is an unreasonable increase in demand exceeding underlying economic factors. However, the recent housing boom has been based more on low mortgage rates and an overall desire to upgrade housing, perhaps also directly related to spending more time at home during the COVID-19 lockdown.
The Role of Low Mortgage Rates
Mortgage rates remained around 3% throughout 2020, the lowest since the then historic 4% rates of 2011. Mortgage rates that low dropped monthly payments by 12%, making more potential homeowners eager to enter the market.
What the 2022 Real Estate Market May Bring
Bloomberg predicts a more boring 2022. this could mean higher mortgage rates and remaining low inventory that could keep housing prices high. Let’s take a look at the top factors that will influence next year’s market.
Lower Demand
In 2020, home buying surged despite a global pandemic. This was driven by low mortgage rates and an upswing in people wanting to own their own home.
Lower demand in 2022 will come from different factors. According to the home buying institute, mortgage rates will probably increase in 2022. We could see a 30-year fixed home loan rate of 3.6%, for example. Meanwhile, those raise hovered at 3% throughout 2021. This could dampen demand significantly.
Higher Mortgage Rates
The Mortgage Bankers Association has also forecast higher rates in 2022. At the beginning of 2021, 30-year mortgage rates dropped to 2.65%, the lowest in 50 years. Going forward, however, rising rates could cool the housing market. This would cause an increase in borrowing costs and higher monthly payments for homeowners. If housing prices continue to rise, that could cool the hot sellers’ market even further.
Rising Home Values
Home prices rose steadily in 2020 despite the economic wreckage of the pandemic. This trend continued into 2021. Many forecasters are predicting the surgeon prices to continue throughout 2023. However, they won’t make the same gains as they have over the previous 18 months.
In fact, rising housing costs are encouraging young professionals to move out of the state or to other areas with a lower cost of living. This could ultimately have a cooling effect on housing prices. However, it’s hard to predict the extent of the impacts or when they will kick in.
Low Inventories May Continue
According to Realtor.com, inventory levels shrunk by half in the year between March 2020 and March 2021. It could take the market some time to recover from that, meaning that in certain markets desirable housing will remain scarce throughout 2022.
Contact the knowledgeable mortgage loan officers on the Potempa Team for affordable interest rates that can help you get into the house of your dreams now rather than later. We specialize in conventional and other mortgage loans, including FHA, USDA, jumbo, VA and other loan pre-approvals.
