Real Estate Trends: Will the Market Cool Down in 2022?

Real estate trends for 2022 — what can we expect for the remainder of the year? In recent months, the housing market has been one of the hottest industries as home prices continue to soar after eight years of growth in housing prices. In 2021, housing prices were supported by low inflation rates and government-funded stimulus packages to mitigate the impact of the pandemic. This, combined with fewer homeowners looking to move during the pandemic, which limited market supply, led to significant upward pressure.

The S&P/Case-Shiller seasonally adjusted national home price index rose by 19.7% between July 2021 and July 2022 (13.61% inflation-adjusted), significantly surpassing the previous year’s 4.85% jump, which was already the biggest year-over-year growth ever observed.

However, in recent months, interest rates have hiked along with fixed annual mortgage prices, which leads to the question: Will the real estate market cool down for the remainder of 2022? Let’s take a look at the trends in real estate for 2022.

Are We Headed Into a Housing Bubble?

Are there signs showing a possible recession in the housing industry?

A recent report from the Federal Reserve Bank of Dallas claims that there are some signs that the U.S. housing market may be entering a bubble. The report cites three main reasons for this claim:

  • The current rate of home price growth is not sustainable.
  • Homes are becoming increasingly unaffordable.
  • A growing number of people believe we are in a housing bubble.

While the Dallas Fed report presents data based on past market conditions and trends, the true value of the report stems from alternate reasoning behind market conditions that have caused major collapses in the past.

First of all, home buyers are not purchasing risky subprime mortgages like they were during the lead-up to the Great Recession.

Credit standards have actually tightened since the last housing crash, and mortgage lenders require larger down payments than they did in the past.

Secondly, there is no evidence of widespread overbuilding in the U.S. This was a significant factor that led to the housing market crash in 2008, when builders continued constructing homes even though there was already an oversupply in the market.

Lastly, household debt levels are much lower than during the Great Recession. In other words, Americans are less leveraged and therefore more capable of weathering a potential downturn in housing prices.

So are we on the cusp of a recession? Most likely not.

However, are the real estate markets still in line to cool off over the remainder of 2022? Analyzing some key trends in real estate will help us better understand the current and future market conditions.

Interest Rates

In looking at real estate trends for 2022, interest rates are one of the most important factors in the housing market’s health, but where are they headed?

As we saw during the last housing market crash, when interest rates increase, home prices usually decrease. When rates go up, it becomes more expensive for people to get a mortgage — meaning there are fewer buyers in the market, and prices drop.

In early May, the average fixed rate on a 30-year mortgage was 5.27%, the highest level in more than a decade. This means that people buying a home now will have higher mortgage payments than people who bought a house just a few months ago.

As rates continue to rise, we will likely see fewer buyers in the market, and prices could drop, although this could take a few years to play out.

Overall, increasing mortgage payments could potentially lead to a cooler real estate market in the upcoming months.

Inflation

This is another huge discussion point for real estate trends in 2022: Is inflation primed to go up or down? And how will that impact the current real estate markets?

As inflation goes up, so does the cost of living — meaning people have less money to spend on things like buying a home.

In recent months, we have seen the Federal Reserve step in to curb inflation levels. One of the primary changes has been putting upward pressure on mortgage rates.

In April 2022, the inflation rate was at 8.54%, significantly higher than even six months prior, when rates were around 6%.

The increase in inflation is another indicator that the real estate markets may be primed to cool off for the remainder of the year.

The Overall Economic Health

What does the overall economic health say about the housing industry when looking at real estate trends for 2022?

The economy’s general health is also a major factor in current and future trends in real estate. This is typically determined by economic indicators such as GDP, employment statistics, manufacturing activity, costs of goods, etc. When the economy is slow, real estate tends to be sluggish.

In the first quarter of 2022, real gross domestic product (GDP) fell at an annual rate of 1.4%, following a growth rate of 6.9% in the fourth quarter of 2021, while personal income increased 0.5%.

Generally, when the GDP is decreasing, it’s an indicator of a cooling economy, which could lead to a decrease in demand (and prices) for housing. However, raising income suggests buyers have more capital to invest in the real estate markets to counter the decreasing GDP.

Overall, the market conditions favor a cooling housing market for the remainder of 2022.

Supply and Demand

One of the most critical aspects of the housing market’s prices is supply and demand.

There is more demand for housing than available supply, which has caused prices to increase and led to a seller’s market. According to the National Association of Realtors, only 910,000 houses were available for sale in December, a new all-time low.

As we have seen in the past, when interest rates rise and the economy slows down, people tend to move less — meaning that the demand for housing decreases while the available supply increases.

Another reason for the low inventory in the real estate market is the increasing trend for individuals to work remotely and work from home offices. When people spend more time in their homes, they are less likely to want to move, further decreasing the available housing supply.

2022 Real Estate Trends: How to Mitigate a Cooling Market

While it does appear that trends in real estate may not be able to sustain these astronomical house prices, it does not appear that the impact will be significant on the overall industry.

A healthy market rebalancing is more likely to occur after an unprecedented couple of years.

This is good news for people looking to buy a home, as it means they may have more negotiating power and choice in the coming months. It’s also good news for the economy, as a healthy housing market is key to sustained growth.

One thing to note is that with the cooling markets, your title agency may want to consider cutting costs for the remainder of 2022.

One great way to achieve this is through paymints.io’s innovative payment solutions.

Paymints.io is a digital, white-label SaaS service that enables clients to move money for real estate transactions. Escrow holders and settlement agents can also use the innovative platform to disburse funds to consumers or suppliers. Paymints.io solutions can help you close deals in a more efficient, cost-effective way.

If you are interested in closing more deals in 2022, regardless of market conditions, schedule a call with paymints.io today!

 

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