There is an expectation that strong homebuyer demand and inventory shortages will persist into 2022, but the housing market is unlikely to repeat this year’s dizzying heights, when existing-home sales reached their highest point in 15 years with an estimated 6 million sales. A more normal housing market in the new year would be characterized by decelerating home price growth, decelerating inflation, and multiple interest rate hikes by the Federal Reserve, National Association of REALTORS® Chief Economist Lawrence Yun said Wednesday at NAR’s virtual Real Estate Forecast Summit. A survey of 20 leading economists, led by Yun, provided a consensus forecast for the real estate market.
In 2022, the group of experts predicts a 5.7% rise in home prices and a 4% rise in inflation. “Overall, survey participants believe both the housing market and the economy will normalize next year,” Yun said. Furthermore, Yun predicts existing-home sales will decline to 5.9 million in 2022 while housing starts will rise modestly to 1.67 million as supply chain backlogs diminish as a result of the pandemic.
Affordability remains a concern
Housing affordability remains a concern. Even if the market begins to settle down, affordability issues likely will continue to dampen homebuying prospects for many would-be owners. Housing affordability had already reached crisis levels before the pandemic added to the strain, said Todd M. Richardson, general deputy assistant secretary at the Department of Housing and Urban Development’s Office of Policy Development and Research.
However, the Biden administration’s Build Back Better plan offers several programs that have the potential to increase housing access for all. The bill provides $10 billion in down payment assistance for first-generation home buyers, $24 billion for housing choice voucher rental assistance, and $15 billion for the Housing Trust Fund to build and preserve over 150,000 affordable homes for low-income households. “Our programs are about unlocking possibilities,” said Richardson. “Support is needed most for housing in low- to moderate-income communities.”
The supply of manufactured housing could ease the housing crunch. In addition, modern manufactured housing—with its high-quality factory construction and lower per-unit cost—could help fill some of the gaps, according to Lesli Gooch, CEO of the Manufactured Housing Institute. In addition, manufactured homes could offer wealth-building opportunities for buyers. “Research by LendingTree shows that, from 2014 to 2019, the median value of manufactured homes increased by 40%—six points above site-built homes,” said Gooch.
Naa Awaa Tagoe, acting deputy director at the Division of Housing Mission and Goals of the Federal Housing Finance Agency, echoed the call for more affordable housing and shared strategies for increasing access to homeownership and rentals in 2022. In addition to appraisal efficiency, low-income housing tax credits and purchases and refinances of small-balance mortgages are among the division’s top priorities for 2022, Tagoe said.
Housing markets may differ by region. In 2022, housing prices are likely to moderate nationwide, but regional variations may occur. Ken H. Johnson, associate dean of graduate programs at Florida Atlantic University, said overpriced areas with lower predicted population growth will see a greater slowdown in prices than those with higher predicted growth. “Everyone will experience some moderation, but there will also be differences,” he said.
First-time buyers may be pleased with the strong building starts in the suburbs. Currently, businesses are competing for workers, according to realtor.com® Chief Economist Danielle Hale. That means buyers have more options for choosing where to live. As opposed to Yun, who saw “hidden gem real estate markets” in the South, Hale recommended buyers look further north. The Mountain West, pockets of the Northeast, the South, and the Midwest are all areas with affordable housing, said Hale.
Demographics provide insight into the future. According to Jessica Lautz, vice president of behavioral insights and demographics at NAR, several demographic trends will continue to influence the housing market into 2022 and beyond:
- The baby boomers want to remain in their homes as they age, contributing to the ongoing inventory shortage.
- Millennials make up the largest group of potential buyers, but are constrained by low inventory, high prices, and student loan debt.
- A drop in the birth rate to a 100-year low could contribute to a further stagnation in the market: The birth of a child is a motivator to buy, and the departure of a child is a reason to sell.
Commercial offers opportunities for growth. Commercial experts on the panel offered their predictions for 2022:
- Multifamily: Rents are probably going to increase, though part of that is a correction from the declines in 2020. The number of rental units, like single-family homes, is limited, and ramping up construction could alleviate some of the strain.
- Industrial: The industrial sector will continue to thrive, despite a drop in cap rates. Retailers will lease more warehouse space to store inventory, and manufacturers will increase production in the United States.
- Shoppers will be attracted to brick-and-mortar stores through innovations such as livestreaming of products, concierge services, and curated local selections.
- There is a labor shortage affecting hotel capacity, and this will continue to affect the hotel industry. It is essential that the hotel industry gets the word out that hotel jobs are stable, pay well, and offer upward mobility.
- Office: This industry is still in the middle of its recovery. In the second half of 2022, central city cores will become major hubs for workers commuting from a greater distance.
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