As we ring in the New Year, let's take a last look at some 2021 real estate milestones, and some predictions for 2022 from industry experts:
In 2021 the average home price skyrocketed nearly 20% year over year, according to the Federal Housing Finance Agency (FHFA). This increase marks the largest annual price growth in the history of the agency’s home price index. And, in some of the hottest markets across the country the price increase was double that!
Despite the higher prices, in 2021 homes sold at a record pace, with mortgage rates and inventory levels hitting all-time lows and demand for homes surging.
- Increased Mortgage Rates
Back in January 2021, we saw average rates for a 30-year fixed rate mortgage at 2.65% but Freddie Mac reported that the average rate rose to 3.05% as of last week. NAR’s chief economist Lawrence Yun expects the 30-year fixed rate to increase to 3.7% by the end of 2022, but he notes that this will still be lower than the pre-pandemic rate of around 4%.Rising rates will not slow sales according to First American’s chief economist, Mark Fleming. “Rising mortgage rates don’t change the other key housing market fundamentals...strong millennial home buyer demand will continue to underpin the 2022 housing market.”
- Tight Inventory
Although the spring home buying season saw more properties become available this year, there were also more buyers — creating fierce competition and sky-high prices. According to Realtor.com’s forecast, housing inventory is expected to improve slightly next year, but only by about 0.3%.
- Supply Chain Issues
Supply chain disruptions caused by the pandemic continue to delay shipments, which directly impedes new construction, making the market that much more competitive."Despite the fact that builder confidence is pretty strong right now, in the short run there is a lack of building materials, higher cost of building materials like lumber, appliances, windows and doors, and even garage doors," said Robert Dietz, chief economist the National Association of Home Builders.
- Further complicating the picture is a sustained labor shortage, particularly for skilled construction workers. Delivery delays can extend build time by as much as four to eight weeks for a typical single-family home. And, if there aren't enough contractors on hand to use those materials once they show up, it's clear that demand will continue to outweigh supply for some time to come.
- Rising Home Prices
While existing home sale prices were up 13.9% by November 2021, with an average price of $353,900, new construction home prices were even higher! New construction homes hit an average price of $416,900 in November according to the U.S. Census Bureau – a 19% year-over-year increase.A group of 20 top economic and housing experts brought together by the National Association of Realtors projected that median home prices will increase by 5.7% next year. NAR survey participants said they expect the housing market and broader economy to normalize next year as the Fed tries to tame inflation.
While 2022 will bring more strong headwinds for homebuyers, it looks like the tailwinds will continue to benefit builders and real estate investors.