Over the course of 2021, the housing market was hot. From historically low mortgage rates to more people looking for homes that made remote work more sustainable, the market was competitive, and homes were being sold in days or even hours in some places throughout the country. With 54% of homes being sold above list price, high demand and low supply highly contributed to the competition. While the market competition has slowed a bit, prices are not expected to decline anytime soon. These factors leave many buyers, sellers, and real estate professionals asking themselves: “Will the Housing Market Crash in 2022?” We believe it is unlikely and here’s why.
Housing Market Driving Factors
The main driving factors in determining the likelihood of a housing market crash are the state of the economy, population demographics, status of inventory and new construction homes. While the shortage of newly built homes is apparent, the U.S. economy is bouncing back from the effects of the COVID-19 pandemic. Many people are beginning to enter the housing market thanks to their success in their careers and looking for new opportunities to start families, begin retirement, or just relocate within their existing communities.
As the economy stabilizes and more sellers put their homes on the market, supply will improve. Many homeowners have positive equity in their homes which strengthens the market. According to Atom Data Solutions, homeowners who sold their homes in Q1 of 2021 made an average of $94k which is an estimated 44% return on their original price. This high return leads many current homeowners to wonder if now is the time to sell or stay put. Since the 2008 housing market crash, banks have also increased home equity by issuing tighter lending requirements, which means the risk of over-supply due to defaults is low.
A housing market crash occurs when there is an oversupply of homes in the market. Right now, we are in desperate need of homes for prospective buyers. Between supply chain and labor issues, it is estimated that there are 4 million homes needed to stabilize supply and demand. Because of the low supply, the prices will also continue to increase by a small percentage, which will deter some buyers from entering the market right away. Home values are expected to slow into 2022, which may lead to more sellers entering the market to avoid foreclosure alongside rising mortgage rates in the new year. Fannie Mae predicts that an average 30-year fixed-rate mortgage will sit around 3.3% in 2022.
Generations Entering the Market
Another reason that the housing market crash in 2022 is unlikely is due to the influx of millennial buyers expected to enter the market. Millennial homebuyers range from those born in 1981 to 1996 and are currently between 25 to 40 years old. Around 4.8 million millennials are turning 30 in 2021 and are expected to enter the housing market, if they have not already. Since millennial homebuyers are likely purchasing their first homes, this supports the bottom of the housing market, keeping it stimulated for the next few years. While millennials are a large factor, boomers will also be actively involved. Due to increased home equity and financial gains in their careers and homes, the baby boomer generation may be interested in purchasing a more expensive home or relocating for retirement.
So Will the Housing Market Crash in 2022?
The housing market is showing signs of stabilization with steady transactions, price growth, and more inventory entering the market. While there is no crystal ball to answer if a housing market crash is on the horizon, the data says otherwise. Real estate is constantly changing and will continue to rise and dip now, and in the future. With low-interest rates and personal financial security, homeownership is still a possibility. If you are interested in learning more about the home buying or selling process, the team at Metropolitan Title is here to help.