The housing market’s roller-coaster pace in 2021 could slow to a more manageable tempo this year, but the seemingly insatiable demand for homes is likely to continue, real estate consulting firm RCLCO said in its 2022 single-family residential outlook.
Record housing demand is being driven by a number of factors, including the continuing economic recovery, existing-home price appreciation, historically low interest rates, demographic trends and a pandemic-driven desire for more space.
“Three years into a worldwide pandemic, and the housing market’s greatest challenges are more related to supply than demand, with an inadequate supply of new and resale homes to purchase following years of under-building, exacerbated by the economic impacts of the COVID pandemic and recent supply chain issues,” the report by RCLCO managing director Gregg Logan found.
Homebuilders are adapting to these issues, and mitigation efforts by industry and government are starting to bear fruit and should produce improved market conditions over the next two years.
Looking ahead, forecasts for home price growth in 2022 average about 5%, compared to the long-term historical trend of 4.6%. Estimates range from a 2.3% projected increase from the Mortgage Bankers Association to an 11% rise forecast by Zillow. All forecasts, however, are substantially below the record price increases of 2021.
Builder sentiment remains positive, and the pace of residential construction is improving after a summer lull, RCLCO said, noting that housing starts, permits and completions rose in December compared to November.
Fannie Mae’s most recent forecast for new single-family home sales calls for a slight year-over-year increase in 2022. The company is forecasting sales of 885,000 new homes, representing growth of almost 15% compared to last year, although it warned that its forecast could be revised downward if mortgage rates rise more dramatically than expected.
Current trends point to the 30-year fixed mortgage rate rising to at least 3.7% in 2022, which could further decrease housing affordability and dent homeownership strides.
Currently, there is only 2.1 months of for-sale housing inventory, about flat with the end of 2020, while there was a six-month supply of new homes in December, compared to 3.8 months a year earlier.
“All in all, the potential exists for another very good year for the single-family housing industry and master-planned communities business, but with obvious challenges and some unknowns to contend with as well,” the report concluded.