Will there be a housing market correction in 2022 after two years of 'hyper-growth'?
High-stakes bidding wars. All-cash offers. Limited supply.
After two years of scorching growth in the U.S. housing market, will there be a cool-down and possibly a fall in sales and prices in 2022, along with a return to some normalcy?
Um, not exactly, several housing experts tell USA TODAY.
"Home sales are likely to be slightly lower in 2022 from the anticipated rise in mortgage rates. Home prices, meanwhile, will continue to rise due to the ongoing housing shortage even as demand is clipped a bit," said Lawrence Yun, chief economist with the National Association of Realtors (NAR), who oversees NAR's research group.
"After seeing such hyper-growth," said Andreis Bergeron, head of brokerage operations at Awning.com, a real estate tech company,"I don't think we will see a correction, maybe a slowdown."
Ryan McLaughlin, the CEO of the Northern Virginia Association of Realtors (NVAR), also does not expect a drop in prices. "I don't see any sort of crash in the near future. No way."
Their comments come after one of the hottest and craziest stretches in real estate driven by a pandemic that has fueled demand for bigger houses as more Americans work from home. The frenzied buying has also been propelled by historically low mortgage rates and millennials (as many as 45 million, according to Realtor.com) trying to purchase their first house.
Last year the median price of an existing single-family home jumped to an all-time high of $357,900, up 23% from a year earlier, according to the NAR. About 94% of 183 metropolitan areas that were measured notched double-digit gains, up from 89% from the previous year, the organization said.
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As for home sales this year, the market will remain strong, experts say, but resemble closer-to-normal levels. The NAR forecast calls for median price gains by the end of 2022 of between 5% and 7%. But buyers will also have to contend with rising inflation that could raise prices higher as well as slightly higher interest rates.
Mortgage rates will go up this year after hitting historical lows during the pandemic, but not by much, Yun said. The NAR thinks it will be around 3.7%, compared to 3.4% currently. That's still historically low.
Although there might be a home sales drop of about 2% in 2022, Yun still predicts sales will outdo pre-pandemic levels. The NAR anticipates that annual median home prices will increase by 5.7% in 2022.
Yun also believes there are still between 5.5 to 6.8 million housing units that would need to be built to meet the market demand for homes.
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That could mean regions like the South will continue to be a hotbed for homeownership due to more supply, said Robert Dietz, a chief economist with the National Association of Home Builders (NAHB).
He said the region, including Texas hotspots Austin, Dallas-Forth Worth and Houston, will continue to represent more than half of all new single-family homes built in the U.S,
That coincides with the NAR identifying 10 housing markets as "hidden gems" to look out for this year. Besides Dallas-Fort Worth, those other metro areas include Daphne-Fairhope-Foley, and Huntsville, Ala.; Fayetteville-Springdale-Rogers on the Arkansas-Missouri border; Knoxville, Tenn.; Palm Bay-Melbourne-Titusville, and Pensacola-Ferry Pass-Brent, Fla.; San Antonio-New Braunfels, Texas; Spartanburg, S.C.; and Tucson, Ariz.
"There's a cause-and-effect occurring because those markets are attracting businesses and it's easier to develop commercial properties and new homes," said Dietz, citing Tesla CEO Elon Musk's recent announcement to move his company headquarters from the San Francisco Bay area to Austin.
McLaughlin cites a similar situation created by Amazon's soon-to-be newest headquarters in Arlington, VA., which will attract new homeowners in a market where the average price of homes sold in NVAR's region peaked near $750,000 in October. He said in November the sales volume in his region was more than $17 billion, 25% higher than the 2020 sales volume at that time.
Other southern locales including Charlotte, Nashville, Tampa and Orlando, Fla., are also in high demand, Dietz said.
NAR's Yun said the South is one region that is likely to experience an increase in sales in 2022 because of baby boomer retirements and moves to southern states for affordability and warm weather.
"Florida, Texas, and Tennessee have zero state income tax, which is also a big draw in an environment of potentially rising federal tax rates for some," Yun said.
The Sun Belt and southern states are also fueling competition in which big investors like BlackRock, Sylvan Road and First Key are scooping up single-family homes (at times using all-cash offers) to rent what might otherwise be available for young, working- and middle-class households to purchase, Awning.com's Bergeron said.
"That's something we all need to pay more attention to," said Bergeron, adding that the climate for first-time homebuyers will still be tough.
Dietz added that first-time and prospective buyers will need to be patience and develop a strategy.
"It's going to be a frustrating market for them in 2022," Dietz said. "My best recommendation is to be strategic and maybe expand your geographic area due to such a limited housing inventory."
Yun, the NAR economist, agrees, offering a few suggestions of his own.
"For those who can work-from-home or at least do not need to commute every day, first-time buyers can widen their search to affordable areas in the next county," Yun said. "Or even consider relocating to say Midwestern cities where a good number of homes are priced under $200,000."
Dietz said Midwestern markets around Columbus, Ohio, Indianapolis, Kansas City, Des Moines, Iowa and Fargo, N.D., are seeing plenty of housing surges.
"The smaller markets are growing," said Dietz who also thinks there will not be a housing correction, but "a slowing of some ongoing growth trends."