Frenzy to Frustration

Is 2022 a good time to purchase?

The United States real estate market has seen a steady increase in home values for over a decade now. And, according to the S&P Dow Jones Indices, in August 2021, U.S. home prices grew a record-breaking 19.8% year over year. Just before the pandemic, experts predicted modest growth for the real estate industry in 2020, but then as we all experienced, the world changed. So, where does that leave us as we look to 2022?

Moderate Growth to Frenzy Buying

Almost everything stopped in the spring of 2020, but after a short hiatus, the real estate market went into a frenzy of purchasing, leaving virtually no inventory. The housing market was already suffering from inventory issues at that point. Still, when the mass migration from large cities to more desirable locations occurred, the average time for a home on the market plummeted. In 2019, the average number of days a home was on the market was approximately 38 days, in contrast to record-breaking 17-day averages in 2021. In addition, the mortgage rates lowered from an average 30-year rate of 3.62% in January 2020 to a low of 2.68% in December that year, bringing more buyers into the market.

Many people decided to retire early or simply took advantage of working from anywhere and entered the real estate market along with millennials who had been sitting on the sidelines waiting to purchase their first homes. When this confluence occurred, it set the stage for unprecedented growth.

Homebuyers were seeking larger homes with yards, outdoor living, and home offices. In 2020, homes in prime locations would receive four and five offers the day they were listed. And, prices escalated accordingly. Realtor.com says, "The October 2021 national median listing price for active listings was $380,000, up 8.6% compared to last year and up 21.8% compared to 2019."

Inventory Shortages Create Frustration for Buyers

One of the main issues that has arisen in the postpandemic era is the lack of inventory. According to Realtor.com, "The national inventory of active listings declined by 21.9% over last year, while the total inventory of unsold homes, including pending listings, declined by 14.8%. The inventory of active listings is down 51.9% compared to 2019."

The lack of inventory has been very frustrating from the buyers' perspective. However, if your goal is to move immediately or within the next few months, purchasing an existing home may be the best bet. It may not have all of your "must-haves," but you can always add them in at a later date.

If you wish to build or purchase a new home, inventory shortages may still be an issue. Builders and developers are working hard to meet the increased demand, but many have exhausted their existing inventory as well. They are adding homesites and building homes as quickly as possible. However, as you may have read in the supply shortages article on page 130, it's become increasingly difficult to predict how long it will take to build a home.

A Look Ahead

So what's in store for '22? Though the real estate market is still very hot, experts agree that there might be a slight cooling down period. Although the prices have increased substantially, don't expect them to fall in 2022, prices are expected to increase about 5% to 7%. Mortgage rates are also likely to continue to inch up but remain relatively low. With lower interest rates, it's possible to afford more of the house that you want. The important thing is to focus on your budget and find or build a home within your price range. And, it's the perfect year to start looking if you are a couple of years away from making a move. You can find your ideal destination and builder and have the home completed in plenty of time to move in.