By Holden Lewis and Kate Wood | Nerdwallet

Let’s get right to the point: the housing market of 2022 looks likely to be a watered-down version of 2021. This means that while price increases may slow down and competition may be a little less intense, overall, we still envision an unusually hot market. .

We wouldn’t call it a real estate “bubble” because economists don’t expect prices to suddenly burst and start to deflate. But that’s little comfort to potential homebuyers who have been turned down offer after offer. The stress of buying and selling a home almost always puts people in their feelings, but over the coming year the emotions could be particularly high.

Here’s how we think it might play out.

Rates will increase but remain quite low

After hitting a record low of 2.66% at the end of 2020, interest rates on 30-year fixed-rate mortgages rose in early 2021, but then hovered below 3% for a period of time. much of the year. While we’re unlikely to revise rates below 3% anytime soon, major forecasters aren’t forecasting huge increases for 2022.

On the high side, the Mortgage Bankers Association predicts that rates will reach 4% by the end of 2022. At the lower end of the scale, Fannie Mae expects the 30-year fixed rate to average 3.4 % at the end of the year. These two organizations, along with Freddie Mac and the National Association of Realtors, predict that rates will rise steadily until 2022. When you take the average of the quarterly forecasts of the four groups, you have the 30-year fixed on average of 3, 33%. in the first quarter and 3.7% in the fourth quarter.

This moderate increase appears to be a correct prediction given the Federal Reserve’s plan to slowly ease its support to the market by reducing its purchases of mortgage-backed securities and Treasuries. The long-awaited central bank move had already prompted market watchers to anticipate higher rates throughout the second half of 2021.

But markets are fickle, and with the uncertainty over inflation, jobs and, of course, the pandemic, even the Fed’s plan is only explicitly presented until the end of 2021. We all seem agree that rates will zigzag, but it won’t. that doesn’t mean they can’t zag.

Home prices will also increase, but not as fast as in 2021

Median prices for existing homes have seen double-digit year-over-year increases throughout 2021, according to NAR data. And the highest median price – $ 362,800 in June 2021 – was almost $ 60,000 higher than the median price in January 2021. September, the most recent month for which data is available, continued a downward trend. late summer with less sky-high increases, and forecasters predict a slower price. growth will continue until 2022.

At the high end, Fannie Mae expects home prices to rise 7.4% year over year, with Freddie Mac putting his forecast at 7%. MBA forecasts a 5.2% increase, while NAR is the outlier with a forecast of only 2.8% year-over-year growth. On average, these give us a projected 5.6% growth in house prices in 2022.

That would bring a home sold at the median price of $ 352,800 in September 2021 to a potential resale value of $ 372,557 in 2022. Even as the rate of increase slows, the idea that median prices of existing homes are approaching $ 400,000 is more than a little alarming.

Because what is slowing the rise in house prices? Spoiler alert: It’s not that the inventory of homes available for sale is increasing. Demand may weaken because potential buyers are overpriced.

“First-time homebuyers’ prices are already withdrawing from the market at an increasing rate, and rising prices have pushed the percentage of those who can afford a home below 30% for the first time in many years. », Robert Frick, business economist. for the Navy Federal Credit Union, said in an email.

“Hopefully higher prices will reduce demand,” he added, which could cause sellers to pull out of the price escalation. “Nonetheless, for demographic reasons, housing demand will remain strong for the foreseeable future, so a moderation in house prices is unlikely to be dramatic. “

Current owners can put more net worth at work

With home values ​​rising throughout 2021, many homeowners have a considerable cushion of equity. ICYMI, the value of your home minus the amount you still owe on your mortgage equals the equity in your home. For most homeowners, becoming a seller in this market (yes!) Also means becoming a buyer in this market (boo), so staying put and upgrading can be more appealing than moving.

For homeowners looking to remodel, a slight increase in interest rates wouldn’t necessarily deter a cash refinance, home equity loan, or home equity line of credit. Overall, mortgage analysis firm Black Knight estimates that US homeowners have about $ 9.1 trillion in workable equity. More than $ 6 trillion of this equity belongs to households with a credit rating north of 760, that is, to people likely to benefit from the most advantageous interest rates. Borrowing against your home always comes with some risk, but the temptation to indulge yourself for having made it through 2021 (and 2020) can be strong.

And while rising rates might make rate and term refinances less attractive, many homeowners could potentially benefit from basic refinancing. As of October 2021, about 11.5 million homeowners could refinance and lower their interest rates by at least 0.75%, according to Black Knight.

Affordable housing will remain difficult to find

The inventory of existing homes for sale has increased throughout 2021, but has remained low enough that we are still far from a buyer’s market, if not a balanced one. When it would take six months or more to sell all the homes on the market at the current rate of home sales, the market would favor buyers. Less than six months, it’s a sellers’ market. The most recent NAR data for September 2021 shows the United States only has a 2.4 month supply.

On top of that, affordable housing is even harder to find, as scarcity – among other forces – drives up prices. Examining house prices in the 100 largest metropolitan areas in the United States, Harvard’s Joint Center for Housing Studies found that by 2020, a household earning 50 to 80 percent of the region’s median income could afford to ‘buy a home in just 39 of these subways. If you think it sounds bleak, in 2021 the number of affordable metropolitan areas has dropped to 20.

And it is with historically low mortgage interest rates that are helping to make homes more affordable: having to spend less on interest each month allows buyers to spend more money on their equity or building up a mortgage. own funds.

“As tight as it was this year, interest rates have kept buyers in the game,” commented Anthony Carr, a broker at Re / Max West End in Falls Church, Va., In an email. But with rates and prices rising slightly, albeit at a slower pace, buyers at the lower end of the market will be kicked out.

Sellers will still have the advantage most of the time

With such a low inventory, most sellers can continue to expect multiple offers. The National Association of Home Builders regularly polls buyers who have been looking for three months or more and found that in Q3 2021, being overbid was the main reason these people had not yet bought a home.

While some markets still have buyers offering the best price for virtually every property listed, others are starting to see moderation.

Torrence Ford, a Re / Max Premier brokerage in Atlanta, said in an email that “sellers whose price is correct always see contracts pending in 10 days or less,” but to get the best deals, properties must be in good condition. “Sellers still need to prepare their homes for a traditional sale with paint, deep cleaning, and sort out major repair issues,” he said. “With these things online, buyers are easily willing to forgo inspections and assessment contingencies.”

He also mentioned that the hectic pace of the market in his area had calmed down somewhat: “Buyers have a fair chance for homes from listing agents and sellers who allow homes to stay on the market Thursday through Sunday.

Four days, is it now a “good shot”? Compared to the recent craze of sellers asking for the “highest and best” deals from a single day of sightseeing, of course, why not. Four days might not be enough time to visit a property twice, but at least you can sleep on it.

Buyers are fed up

While social media may not be an official barometer of the housing market, looking at exasperated memes, stunned TikToks, and sarcastic tweets, it’s clear that homebuyers – especially Millennials and Gen Z who hope to own homeowners – get salted. There seems to be a growing understanding that it is less about their individual financial choices (like the much mocked avocado toast theory) and more about the market failing to provide affordable housing. that keep pace with current demographics.

And while many Americans are still hoping to buy homes, some are abandoning the search. The NAHB found that after peaking in the second quarter of 2021, the number of potential buyers actively trying to find a home fell.

Others find ways to do whatever it takes to get a house. “Sellers are getting greedy and buyers are getting smarter,” Century 21 affiliate agent Barry Shaw of Hudson, Wisconsin, said in an email. “Buyers got creative with their offers to beat (the) competition.” This can include workarounds that avoid a full home inspection and contingencies that cover potential valuation gaps.

The determination of buyers who do not give up until an offer has been accepted ensures that competition will remain intense, especially in sought-after subways. Prices can go up, rates can go up, inventories can go up, but there is one certainty we can predict: people will continue to buy homes.

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Holden Lewis writes for NerdWallet. E-mail: [email protected]. Twitter: @HoldenL.

Kate Wood writes for NerdWallet. E-mail: [email protected].