Home Sales: Hit 16-year Highs
At a national level, this means we expect to see continued home sales growth in 2022 of 6.6% which will mean 16-year highs for sales nationwide and in many metro areas. With more than 45 million millennials in the prime first-time home buying ages of 26 to 35 in 2022, demand for housing is expected to remain strong. A growing economy and declining unemployment, also propels income growth of 3.3% by the end of the year, keeping sales levels high despite climbing mortgage interest rates. In most metro markets, our model suggests that home sales will follow the national trend and increase in 2022. While some markets are expected to see home sales declines, these declines are likely to be modest. In fact, for many areas forecasted to see declines, 2022 is expected to have the 2nd highest sales level in the last 15 years, bested only by 2021.
Home Prices: Advance at a More Moderate Pace, but Continue to Set Records
Home sales prices are set to continue to increase which will mean notching a decade-long streak of year over year increases early in 2022. The rise in home prices, which began in 2012, has proceeded consistently if unevenly. Following the pick-up from post-recession lows, home prices logged more than a year of double-digit growth in 2013, but since that time the pace of increase has been a more modest 4% to 7% per year. This changed in 2020. The pandemic ignited a frenzy in the housing market. A decade’s long shortage which meant the market was already 5.2 million single-family homes short was met with an unprecedented surge in demand just as many were expecting the opposite response to the pandemic uncertainty. While builders worked to adjust, the market balanced high demand and short supply by pushing prices higher. August 2020 kicked off a year-long streak of double-digit home price growth. Looking ahead, with economic growth expected to sustain the purchasing power of eager homebuyers, we expect the median home sales price to continue to increase, rising 2.9% in 2022, a notably more moderate pace. As builders ramp up production to meet demand, home buyers will grapple with higher monthly costs due to rising prices and rising mortgage rates. Affordability challenges will keep prices from advancing at the same pace we saw in 2021 even as ongoing supply-demand dynamics mean prices continue to grow nationwide.
For-Sale Inventory: Begins to Turn Around
With homes selling and continuing to do so quickly, inventory will remain limited, but we expect to see the market rebound from 2021 lows. Inventory is expected to grow 0.3% on average in 2022. While buyers have been eager in the last 2 years, sellers have been on and off. A rising share of homeowners this fall reported planning to sell a home in the next 12 months could signal an improvement in this trend that has been a major challenge for the housing market. With 28% of homeowners choosing not to sell indicating that the reason for doing so is because they can’t find a new home to buy, a pick-up in inventory could be self-reinforcing, drawing out other potential sellers as they find homes to buy. Rising new construction will eventually feed into this positive trend as well, but first, builders’ pipelines catch up to the usual balance of already-completed vs. under construction vs. not yet started homes. Completed new homes have recently made up half their usual share of all new homes for sale while homes not yet started are twice as prevalent as usual. In other words, New homes are in many recent cases only a viable option if you can wait for the construction process to finish.