After a year in which home prices rose sharply and the number of homes for sale declined, experts expect a normalization of the housing market in 2022. According to The Washington Post, with economic projections from sources including the National Association of Realtors (NAR) and the National Association of Home Builders (NAHB), projected higher mortgage rates should help moderate prices in 2022, but low inventory means the housing market will still likely favor sellers.
“All markets are seeing strong conditions, and home sales are the best they have been in 15 years,” Lawrence Yun, the chief economist at the NAR, said. “The housing sector’s success will continue, but I don’t expect [2022’s] performance to exceed [2021’s].”
He said sales may decline this year but predicts that they will exceed pre-pandemic levels. His forecast is based on an expectation of more inventory in the coming months. The increased supply will be generated, in part, from new housing construction as well as from the end of forbearance for struggling mortgage payers, a situation that will cause some homeowners to sell.
Yun projects that mortgage rates will increase to 3.7 percent in 2022, pushed up by persistently higher inflation. NAR surveyed more than 20 economic and housing experts to gauge their expectations of home-price growth, new-home sales and existing-home sales for 2022. The group predicted that median home prices will rise by 5.7 percent this year.
Persistent supply-side problems will limit the pace of construction as well as cause home prices to rise. The supply-chain bottleneck has made appliances more expensive and scarce. The Biden administration doubled the tariff on Canadian lumber to 18 percent, which has increased raw materials costs.
“It’s taking longer to build, and it’s costing more,” Robert Dietz, the chief economist at the NAHB, said. “Using the [Producer Price Index] inflation data, we build a basket of goods that are connected to residential construction, and right now, those prices are up about 19 percent year-over-year.”
Shortages of skilled labor persist. Dietz said more than 400,000 jobs are open in the industry on top of the fact that NAHB estimates the construction industry needs to add 740,000 workers a year to make up for retirements and the industry’s growth.
Because of these headwinds, Dietz forecasts single-family home starts in 2022 at a little over 1.1 million, just a 1 percent growth. That would be down significantly from the 13 percent growth in 2020 and the 9 percent growth in 2021.
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