Thinking of buying a home in 2022? Here’s what to expect

Jan 24, 2022, 11:22 AM
A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. U.S. annual home pr...
A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. U.S. annual home price growth remained strong at 18 percent in October, the highest recorded in the 45-year history of the index, according to CoreLogic's Home Price Index. (Photo by Ting Shen/Xinhua via Getty Images)
(Photo by Ting Shen/Xinhua via Getty Images)

(CNN) — If you’re one of many would-be homebuyers who got shut out of the real estate market last year, you might be hoping for better luck in 2022.

The good news is that you probably won’t see the jaw-dropping jumps in home prices seen last year. But prices are still expected to go higher and mortgage rate hikes are anticipated, too.

The housing market had the strongest showing in 15 years in 2021, sending home prices through the roof. Prices skyrocketed nearly 20% through the third quarter compared to a year before, according to the Federal Housing Finance Agency.

The frenzied competition and astronomical price tags gave many buyers pause.

Heading into this year, just 26% of consumers thought it was a good time to buy a home, according to Fannie Mae’s Home Purchase Sentiment Index for December. That was a sharp decrease in sentiment from one year earlier, when 52% believed it was a good time to buy.

One big reason prices have skyrocketed is that there are so few homes on the market. Housing inventory hit an all-time low in December. And, as long as there are way more buyers than sellers, competition will remain fierce and prices will go up.

“Even though demand remains strong, a majority of consumers clearly have reservations about purchasing a home at current prices,” said Doug Duncan, Fannie Mae senior vice president and chief economist.

But that hasn’t stopped people from house hunting. Here’s what to expect if you’re one of them.


Home prices will go up, just not as fast as last year


Home prices are widely expected to continue to rise this year, but not at the eye-popping pace of 2021.

“That kind of price increase was a shock. ‘Unprecedented’ is not strong enough. It was nuts,” said Skylar Olsen, senior director and principal economist at Tomo Networks, a buyer-focused mortgage and home-purchasing platform.

The median price of a home was $346,900 in 2021, up 16.9% from 2020, and the highest on record, according to the National Association of Realtors.

A panel of economists convened by the NAR forecast median home prices will increase by 5.7% in the upcoming year, while a panel of housing experts polled by Zillow expect home values to rise 6.6% in 2022.

But exactly what happens next will depend largely on how both buyers and sellers react to the changing market.

“If buyers finally balk at unaffordable prices, sales volumes could fall,” said Jeff Tucker, senior economist at Zillow. “But if homeowners finally start listing their homes en masse, we could see a sales bonanza, cooling the pace of price appreciation.”


Mortgage rates will rise


Already in the first few weeks of the year, the average 30-year fixed rate for a mortgage has jumped significantly, rising to the highest rate it’s been since the beginning of the pandemic in March 2020.

That trend toward higher rates is expected to continue, although not necessarily at the pace seen in the past couple of weeks.

“We are expecting interest rates to rise this year and that directly impacts affordability for families and their ability to finance a home,” said Jeff Ruben, president of Wilmington Savings Fund Society Mortgage. “We don’t see it being a situation where it will choke off the home purchase market, but we project that the rise in interest rates will dampen activity a bit.”

The 30-year fixed-rate mortgage averaged 3.56% last week. The average was 2.77% this time last year.


Inventory will grow, but so will the number of buyers


While the availability of homes for sale often ebbs and flows, last year seemed to be all ebb.

“The last 18 months have been out of control — every time you turn around it’s been record-high prices or record-low inventory,” said Mike Miedler, president and CEO of real estate firm Century 21. “We have lost the cyclicality of the market.”

But this year, the housing market is expected to return to its normal seasonal cycle, with more homes coming on to the market in the spring, then tapering off throughout the summer. But competition will remain stiff: Experts say buyers — many of whom have been putting offers on homes since last spring — will continue to come in hordes, at least for the first part of the year.

“In the spring, you’ll see that demand come in strong driven by interest rates that are climbing,” Miedler said. “You’ll see people who were waiting on the sidelines — when they see a spike in inventory they will come back into the market.”

Some agents say a few buyers are starting early by looking now. The problem is, there’s not much to look at.

At the end of 2021, inventory was at the lowest levels ever, with just 910,000 homes available to buy nationwide, according to the National Association of Realtors.

The problem is even more pronounced in popular areas.

Jennifer Branchini, a Compass agent, was working with a couple looking to buy in Pleasanton, California, in the Bay Area, where there are currently just under 20 homes on the market.

“If you have only one property that comes on the market around the median price of $1.3 million, that has every homebuyer looking,” she said.

She’s seen prices rise so much during the winter months that she advised some clients to just put their search on hold.

“When I look at what some homes are selling for, I told my clients, ‘I can’t even get behind that number for you guys,'” Branchini said.


Homes will continue to sell fast


Those looking to buy will have to act fast. Many homes have been going into contract in a matter of days of first being listed.

Last summer homes were taking an average of just 17 days to sell, according to the National Association of Realtors. But it depends on the price. Even during November, which was relatively slower, homes priced in the most popular sweet spot of between $250,000 to $500,000 sold in an average of 10 days.

In the greater Washington, DC, area Gail Chisholm, an agent with Compass, said agents often put a home on the market on a Thursday, allow buyers to see it over the weekend during one open house, and then ask that offers are submitted by Tuesday evening.

“It moves very fast, there is buyer’s fatigue for sure,” Chisholm said. “If you find the house you think is your dream house and offer $150,000 or more over ask and waive all contingencies and you still don’t get it? And you’ve lost five houses that way and paid $500 on pre-inspections each time? I have buyers who have taken a break. But many still have to find a home.”

In very competitive markets like hers, she said, the baseline for buyers to compete is to include an escalation clause and escalation cap in their offer, which spells out how much they are willing to top the next closest offer, up to a specific amount.

Beyond that she lays out all the levers that buyers can use, so they can adjust the offer to their risk tolerance.

“It is usually the offer with the fewest contingencies, the highest escalation cap, the most money down and the most accommodation of the seller’s needs that wins.”

In a market this competitive, buyers need to come with their agent and mortgage team in place and be ready to make decisions, said Olsen.

“If you’re in the search process, new listings are coming, but they sell so darn fast,” she said. “Your search for a home is a job.”

Still, Olsen said she’s fearful the pressure and fatigue will lead buyers to make rash decisions they may regret.

“I’m so worried that people will buy out of desperation to finally win a bid and not buy at a price they can afford sustainably,” she said. “Buy a home that is a good match.”

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Thinking of buying a home in 2022? Here’s what to expect