SEATTLE, Nov. 18, 2021 /PRNewswire/ -- (NASDAQ: RDFN) — The new year will bring more balance to the housing market, according to a new report from Redfin (www.redfin.com), the technology-powered real estate brokerage. However, don't expect a buyer's market—just more selection, less frenzy and slower price growth.
Redfin Chief Economist Daryl Fairweather predicts there will be a rush to buy homes at the start of the year before mortgage rates rise. That early onslaught of demand will deplete the supply of homes for sale. In the second half of the year, a much needed increase in new construction will boost sales slightly. In 2022, there will be 1% more sales than in 2021, and by the end of the year, home price growth will slow to 3%.
Below are Fairweather's top 10 predictions for the 2022 housing market.
Prediction #1: Mortgage rates will rise to 3.6%, bringing price growth down to earth
Redfin expects 30-year-fixed mortgage rates to rise slowly from around 3% to around 3.6% by the end of 2022, thanks to the pandemic subsiding and lingering inflation. That would mean about $100 more per month in mortgage payments for the median home.
By winter, higher mortgage rates along with already high home prices will likely slow annual price growth down to around 3%, which represents a steep drop from the record 24% increase posted in May 2021. This low price growth will likely allow more first-time buyers to have a chance at winning a home.
Prediction #2: New listings will hit a 10-year high, which will hardly make a dent in the ongoing supply shortage
In 2022, new listings will surpass the 2018 high of 7.6 million homes, setting a new record going back to at least 2012. As the market becomes more balanced, homeowners will find it less daunting to list their home while looking for a new one to buy. Home-sale contingencies, which allow a homeowner to make an offer to buy a new home on the condition that their existing home sells first, will become more common.
Prediction #3: Rents will increase by 7%
Rents will increase 7% by the end of 2022, more than double the predicted year-over-year growth in home prices of 3%. Demand for rentals will be strong for several reasons. The end of mortgage forbearance will cause many homeowners to sell and rent instead. As the pandemic subsides, more people will choose to live in cities where it is more common to rent. Additionally, the strong labor market will cause more people to move to a new city, and many movers will want to rent so they can get to know their new city before they buy.
Prediction #4: Homebuyers will relocate to affordable cities like Columbus, OH, Indianapolis and Harrisburg, PA over the Sun Belt
In 2022, people will be less likely to move to Sun Belt cities that dominated the 2021 housing market. Austin, Atlanta and Phoenix have seen home prices increase by 29%, 24% and 35% respectively since the start of the pandemic, making them less attractive to homebuyers that prioritize affordability.
Instead, cost-conscious homebuyers will seek out affordable northern cities like Columbus, OH, Harrisburg, PA and Indianapolis, which all happen to be capital cities with highly educated residents where the median home price is still less than $250,000.
Prediction #5: People will vote with their feet, relocating to places that align with their politics
Now that workers have more control over where they live, more people will seek out areas where there are like-minded people with laws that fit their political beliefs. There will also be more blue enclaves growing within red areas and vice versa, as parents select school districts that align with their preferences regarding mask mandates, critical race theory and other controversial issues.
This means that red congressional districts will get redder and blue congressional districts will get bluer. Given that newly drawn electoral maps are expected to benefit Republicans in swing-states like Georgia, Texas and North Carolina, this could make it easier for Republicans to retake the house and senate in the 2022 midterm elections.
Prediction #6: Condo demand will take off
In 2022, dense housing will make a comeback. More and more homebuyers are open to buying a condo or townhome for a fraction of the price of a single-family home. That's a reversal from when the pandemic lockdowns motivated homebuyers to seek out larger homes with big backyards, which caused single family home prices to increase 27% from the start of the pandemic, while condo home prices only increased by 14%.
In September 2021, only 28% of Redfin users filtered for only single-family homes (excluding condos and townhomes from their search). That's down from a peak of 37% in July 2020.
Prediction #7: Homebuyers will take climate risks seriously when choosing a home
Now that natural disasters are increasing in frequency and climate risk data is available on real estate websites like Redfin.com, homebuyers are going to come to their agents with questions about climate risk and associated costs. Homebuyers will want to know about a home or neighborhood's flood and fire risk and how that impacts their insurance costs or the mortgage rate set by their lender (a practice known as blue-lining).
Prediction #8: Housing policy will become central to political battles about climate change
As natural disasters due to climate change become increasingly frequent, political debates will emerge about who should pay for the damage and what the government should do to minimize future damage.
There will be debates about how much local, state and federal governments should spend on climate-resilient infrastructure, on bailing out homeowners whose homes have been damaged, on subsidizing fire and flood insurance, and on relocating residents to more climate-resilient areas.
Prediction #9: iBuyers focus on perfecting a niche service instead of market domination
The major lesson for iBuyers going into 2022 is that if you can't make money on one home, the answer isn't to buy a thousand. iBuyers are going to focus their efforts on providing premium service that is truly needed for a portion of home sellers. Sellers who want to move quickly to take advantage of a new job opportunity, sellers who don't want to deal with the hassle of open houses and home staging, and sellers who want the cash from selling their current home to buy their next all stand to benefit from selling to an iBuyer.
Prediction #10: The DOJ will crack down on how real estate agents are paid
In 2022 the Department of Justice will crack down on how agents are paid, and it is possible that buyers will eventually have to pay upfront for their agent instead of the more common setup now where the seller pays the commission for both the buy-side and sell-side agent at closing. If buyers have to pay upfront, many of them will likely pay more attention to the services their agent offers and get more cost-conscious.
About Redfin Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, instant home-buying (iBuying), rentals, lending, title insurance, and renovations services. We sell homes for more money and charge half the fee. We also run the country's #1 real-estate brokerage site. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can take an instant cash offer from Redfin or have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 6,000 people.
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email [email protected]. To view Redfin's press center, click here.