We all know that the housing market saw unprecedented growth last year. According to the National Association of Realtors, a whopping 6.12 million houses were sold in 2021 – an increase of 8.5 percent from the previous year.
In the same period, Median sales also reached its highest levels with an 15.8 percent jump. The housing market was so hot that in December, only 910,000 units were available for purchase nationwide — an all-time low figure.
But will the rocketing housing prices cool down in 2022? That’s the overall thought with rising interest rates, but it may not be the absolute case. A recent forecast by Zillow, the online real estate sales platform, showed that home prices will increase 16 percent nationwide this year with home value growth excelling through the spring. More than 6.2 million total homes are expected to sell in 2022.
So why is the real estate market still hot even when inflation is high and interest rates are rising?
The first is the influx of people who fled to more densely populated cities during the pandemic for more open air and countryside living. They purchased second homes or rented houses. Favorably low interest rates also encouraged home owners to lock in while they had the chance. Now, with the pandemic easing, many are returning to their cities or working remotely out of their new homes after relocating.
Secondly, mortgage rates are edging back toward long-term highs, but the increases aren’t significant and are still relatively low. These low rates played a vital role in the surging housing market. There was a small possibility that mortgage rates would come down due to the Russia Ukraine war, but that was not the case. In fact, the average 30-year mortgage rate increased last week to 4.08 percent.
Finally, the biggest reason the market is still hot is simple supply and demand. As people began working more from home, a lot of individuals decided to buy a home. On the opposite spectrum, many sellers delayed listing their homes, hesitant due to the ebb and flow of the pandemic. This created a demand for housing that wasn’t available.
We haven’t seen the supply catch up with the demand for inventory yet, and as Forbes pointed out, technology has also played a role. The mechanics of buying a home is much simpler and faster than in previous housing booms. That speed exaggerated the increases in demand spurred by the lower rates and the pandemic. In the end, know that the Federal Reserve Board has announced it plans multiple short-term interest rate hikes before year’s end. With increased rates expecting to slow demand and the fact that the number of mortgage applications are starting to decrease, it’s safe to say the market will begin to see a cool down.
