Are you planning to buy a home in 2022? The good news is that the market won’t spiral out of control like they did last year. Unfortunately, supply is still tight and prices continue to rise. There are also higher chances of mortgage rates.
Real estate professionals say that the pace of home sales in this year’s real estate market won’t be as fast as it was in 2021. Lawrence Yun (chief economist at the National Association of Realtors) stated that sales activity will slow down as the year progresses. “Intense multiple-offer periods are over… people can take it easy.”
Doug Duncan, Fannie Mae’s senior vice president and chief economist, stated that although there is no expectation that prices will drop, “our forecast suggests that price appreciation may slow down.” Duncan predicts that prices will not see a repeat of the 18 percent price increase last year but they will rise by around 7.5 percent. He said that it was not much of an escape, particularly since interest rates are expected to rise at the same moment.
Others have a slightly lower projection of price appreciation but they are not expecting a reversal anytime soon. Robert Frick, corporate economist at Navy Federal Credit Union, stated that “we haven’t seen any fundamentals change to suggest that prices will come down.” He said that prices will continue to rise this year, but that the rate of growth is likely to slow after last year’s double-digit jumps.
In the midst of soaring demand, potential homebuyers found themselves in bidding battles or had to make an immediate decision about the largest financial commitment of their lives. A December survey found that house-hunters might have lost their optimism or decided to wait for the future. The Fannie Mae Home Purchase Sentiment Index showed that while 76% of respondents said that the moment is a good opportunity to sell a house now, only 26% said that it was a good time in which to buy. 52 percent of those surveyed had said that the current market was a good place to buy a home a year ago.
Ralph DiBugnara CEO of Home Qualified said, “There are still a shortage of homes for sale so it’s a seller’s marketplace but the houses that have been overpriced tend to not move.”
Yun stated that home sellers need to recognize the end of double-digit price appreciation. Yun said that people should consider selling if they are considering a sale. They should not speculate about big price increases when they’re actually normal.
The Federal Reserve is aiming to inflate the prices of mortgages and interest rates are rising. This backdrop makes it difficult for these adjustments to occur. The Federal Reserve is trying to reduce inflation by making it more costly to borrow. However, this can dampen aggregate demand and help to rein in inflation. Individual buyers will be affected by the macroeconomic effects. They will have to pay more for their mortgage debt.
Experts predict that there will be a strong first quarter, as people attempt to lock in lower mortgage prices, before the market slows down this year. The current rate for a 30-year conventional mortgage is 3.5 percent. Many real estate experts predict this rate will rise by half to one-third of a percentage point from now through 2022.
Duncan stated that “it’s heavily dependent upon what the Fed says or does.” Higher mortgage rates are partly due to a higher Federal Funds Rate, but it’s also a result of the Fed reducing its economic support during the pandemic.
These support consisted of buying billions in mortgage bonds each month. Purchases that will end by March are expected to be terminated. Last week, Fed Chair Jerome Powell stated that officials are expected to discuss how to shrink this portion of the Fed’s portfolio soon. Market participants will look to policymakers to get more information on whether the Fed chooses to not repurchase mortgage securities when they are older or actively seeks to sell those holdings. This would likely have an abrupt effect on borrowing rates.
Duncan stated that they may need more yield from the bottom-line-oriented buyers of mortgage debt who will continue to exist after the Fed’s exit. “The Fed is not an economic buyer but a policy buyer.
Steve Kaminski from TD Bank’s residential lending department stated that “from a mortgage pricing standpoint… I would think there’s going be a stronger effect from the exit of bond purchases.” He said that although we don’t know the future, there is a clear indication that the Fed will increase rates.
The market will need to adapt as the Fed reduces its previous prodigious appetite for mortgage debt. Their plan is to get out of the mortgage-backed security markets by March. Kaminski stated that he expects the March-April period for that rate rise to be a bit more apparent.
Duncan stated that even if there is a slowdown this year in homebuying, borrowers will find a silver lining in the fact that the same number mortgage lenders will still be looking for business from a smaller buyer pool. The fact that mortgage lenders …. will compete for business is a moderater to the rate increase, he said. He said that they will compete and their profit margins will shrink.”
Experts agree that first-time homebuyers face many challenges. First-time homebuyers face a problem: there aren’t enough homes available at affordable prices. There are bidding wars for most properties. DeBugnara stated that first-time homebuyers must be open to compromise, regardless of whether it is square footage, location, or any other feature.
Both first-time buyers and those looking to downsize will continue to be challenged by institutional buyers. These buyers aggressively target the starter home market to rent out properties they already own. It is becoming more difficult for those who wish to live in their own homes and own them to get into the market, as rents are rising as well.
Frick stated that corporate entities are buying homes to rent which further reduces the availability of homes. 17 percent of all new homes will be corporate-owned homes to rent. He said that one fifth of homes are being essentially taken off the rental market.
“We will see rent prices rising over the next few years,” DiBugnana said. DiBugnara stated that a lot of the larger funds are buying single-family homes in large quantities. “I interpret that as they believe there will be a lot of single-family homes for sale.”
Experts say that while new homes are being built, it’s not happening quickly enough. New home construction had been slowing down even before the pandemic. Covid-19 has imposed a mix of rising labor costs and shortages on builders.
Experts believe that the supply chain is improving over the long term. Duncan stated that “We expect that starts in new homes will rise around 7 percent.” “The builders are doing all they can. They’ll build if they can get the land and labor they need.
Frick stated, “I am encouraged that there will be many more homes built this year.” Frick said that some of the material supply restrictions are being eased. He also stated that builders are purchasing a lot land. Frick said that homeownership will not be possible for those living on the margins until the market returns to historical norms and new inventory becomes available on a larger scale.
He said, “We must remember that homeownership is the main way for middle-income individuals to accumulate wealth.” “Home prices are driving homeownership away from first-time homebuyers and those with lower incomes at an alarming pace.”
