Spring is known as the housing market’s busy season, but if you followed the trends last year, “busy” doesn’t even begin to describe how things went down. In 2021, intense bidding wars, record-high home prices, and rock-bottom inventory levels made for one of the most competitive homebuying seasons in history. Is a similar climate in the forecast for 2022? Here’s what to expect for this year’s spring homebuying season.
Strong demand. Millennials continue to enter their peak homebuying years. In 2022 alone, 45 million milliennials will reach the prime homebuying ages of 26 to 35.[1] That translates to more first-time buyers competing for homes, so expect competition to remain elevated this spring, especially among entry-level homes.
Low inventory. The housing inventory shortage has been an ongoing dilemma since before the pandemic. Over the past two years, supply chain issues and labor shortages have made things worse as home builders struggled to keep pace with demand. While we may see a slight uptick in inventory during the spring and summer months — the typical seasons for listing homes — it won’t be enough to quench demand. This could lead to more bidding wars, though we likely won’t see the same bidding war frenzy we experienced last spring.
Higher home prices. The lack of homes for sale will continue to drive up prices, which could squeeze some buyers out of the market. On a positive note, experts anticipate that home-price growth will slow from the breakneck pace we saw last year. In 2021, home prices rose by nearly 18% toward the end of the year.[2] In 2022, home prices are projected to rise at a much slower pace of 3% to 8%.[1],[3]
Rising mortgage rates. The days of rock-bottom rates appear to be behind us. Mortgage rates have already surpassed pre-pandemic levels[4], and with the Federal Reserve taking steps to curb inflation, including its plan to raise short-term interest rates several times this year, mortgage rates are likely to trend higher. It’s worth noting, however, that mortgage rates are still extremely low by historical standards. Another silver lining is that while higher rates can limit your buying power, they also could help to improve affordability by easing demand, thereby cooling the pace of home-price growth even further.
Home equity growth. While soaring home prices have posed affordability challenges for buyers, they’ve been a boon for homeowners. Home equity remains at record highs, and we’ll likely see more homeowners take advantage of that this spring by tapping into their equity to make home improvements, or by listing their homes for sale to cash in on those profits.
Tips If you’re Buying a Home This Spring
Get pre-qualified and set your budget. The first thing you should do before shopping for homes is to get in touch with your mortgage lender. Know what you can afford, and get pre-qualified so you can shop confidently and competitively.
Work with an experienced real estate pro. They can help speed up your home search and introduce you to neighborhoods and listings you’d otherwise not have known about. A good agent also helps establish realistic expectations and negotiates to get you the best deal.
Build your credit and your savings. A higher credit score and down payment can land you a better mortgage rate, which can help keep your home purchase more affordable in a rising rate environment.
Avoid buyer’s remorse. Prepare a list of wants vs. must-haves so you can move quickly and dodge decision fatigue. But more importantly, know when to walk away from a deal.
Tips If You’re Selling a Home This Spring
Hire a local real estate agent. You’ll want to work with someone who has experience selling homes in your neighborhood and understands the local market.
Make repairs now. Labor and supply shortages may result in longer wait times for repairs and upgrades. If you can manage, DIY as many repairs as you can, and talk to your agent about which projects are a must and which ones to skip.
Price your home competitively. It may be a seller’s market, but avoid the temptation to overvalue your house. Let your agent pull comps and nearby listings to make sure you land at the right price point to attract as many buyers as possible.
Be prepared to act fast. Depending how hot demand is in your area, you may receive multiple offers within a short time period, possibly even on the same day. Determine in advance which terms are most important to you so you can compare offers quickly and make a confident decision.
Sources:
[1] Realtor.com®, 2022 Housing Market Forecast.
[2] Federal Housing Finance Agency, House Price Index, Q4 2021.
[3] Fannie Mae Housing Forecast, December 2021.
[4] Freddie Mac Primary Mortgage Market Survey.