Wednesday, June 1, 2022 / by Maria Ange
Higher Rates and Short Supply: The State of Real Estate in 2022
The last two years caught many of us off guard—and not just because of the pandemic. They
also ushered in the hottest housing market on record, with home prices rising nationally by
nearly 19% in 2021, driven primarily by low mortgage rates and a major supply shortage. 1
But while some had hoped 2022 would bring a return to normalcy, the U.S. real estate market
continues to boom, despite rising interest rates and decreasing affordability.
So what’s driving this persistent demand? And is there an end in sight?
Here are three factors impacting the real estate market right now. Find out how they could affect
you if you’re a current homeowner or plan to buy or sell a home this year.
MORTGAGE RATES ARE RISING FASTER THAN EXPECTED
Over the past couple of years, homebuyers have faced intense competition for new homes—in
part due to historically low mortgage rates that were a result of the Federal Reserve’s efforts to
keep the economy afloat during the COVID-19 pandemic.
However, in response to a concerning level of inflation, the Fed is now reversing those efforts by
raising the federal funds rate. And as a result, mortgage rates are rising, as well. Few experts
predicted, though, that mortgage rates would go up as quickly as they have.
In January 2022, the Mortgage Bankers Association projected that rates would reach 4% by the
end of this year. 2 By mid-April, however, the average 30-year fixed mortgage rate had already
hit 5%, up from around 3% just one year prior. 3 On a $400,000 mortgage, that 2% difference
could translate into an additional $461 per monthly payment.
Since then, mortgage rates have continued on an upward trend. So what impact are these rising
rates having on demand? While many buyers had hoped for a cooling effect, experts warn that
may not be the case.
Ali Wolf, chief economist at housing market research firm Zanda, told Fortune magazine, "Rising
mortgage rates are having a counterintuitive effect on the housing market. Home shoppers are
actually sprung into action in an attempt to buy a home before mortgage rates rise any higher." 4
Since inventory remains low, the resulting “race” has kept the homebuying market highly
competitive–at least for now.
What does it mean for you?
While current 30-year fixed mortgage rates represent an increase over previous months, they
remain well below the historical average of 8%. 5 As inflation across the economy continues, the
Fed is likely to raise rates further this year. Buyers should act fast to secure a good mortgage
For sellers, speed is also of the essence. The pool of potential buyers may shrink as mortgages
become more expensive. And if you plan to finance your next home, you’ll want to act quickly to
secure a favorable rate for yourself. Contact us today to discuss your options.
HOME PRICES KEEP CLIMBING
History shows that higher interest rates don’t necessarily translate to lower home prices. In fact,
home prices rose 5% between 1980 and 1982, a period of significantly higher mortgage rates
and inflation. 5
Forecasters expect that home prices will continue to go up throughout 2022, though likely at a
slower pace than the 18.8% increase of the last 12 months. 4 Bank of America predicts that
prices will be up approximately 10% by the end of this year, while Fannie Mae estimates
11.2%. 6,7
In addition to limited supply and a race to beat rising mortgage rates, home values are also
climbing because of positive economic indicators, like low unemployment. 8 Plus, rents are
soaring–up 17% from a year ago–which is prompting more first-time homebuyers to enter the
market. 9 Add to that the continued popularity of remote work, and it’s easy to see why property
prices continue to surge.
However, it’s not all bad news for prospective homebuyers. Economists expect that as
mortgage rates rise, the rate of appreciation will continue to taper, though the effect may be
gradual.
“Eventually mortgage rates will slow down home prices,” according to Ken Johnson, an
economist at Florida Atlantic University interviewed by Marketwatch. 10 “We should not see rapid
upticks in prices as mortgage rates rise.” Forecasters agree—Fannie Mae expects price
increases to slow to 4.2% in 2023. 7
What does it mean for you?
While the pace of appreciation is likely to decrease next year, home prices show no signs of
going down. However, current labor shortages are leading to higher salaries and better job
opportunities for many workers. You may find that your income growth outpaces home prices,
making homeownership more affordable for you in the future.
For homeowners, the outlook’s even brighter. You could find yourself sitting on a nice pile of
equity. Contact us for a free home value assessment to find out.
INVENTORY REMAINS EXTREMELY LOW
As noted, one of the largest hurdles to homeownership is a lack of inventory. According to a
February 2022 report by Realtor.com, there’s an expanding gap between household formation
and home construction, which has resulted in a nationwide shortage of 5.8 million housing
units. 11
The origins of this shortage date back to the 2008 housing crisis, during which crashing home
values led contractors to stop building new properties—a trend that has not been fully
reversed. 12
That decline in home construction also resulted in a decrease in the number of home building
professionals, a trend that was exacerbated by job losses during the COVID-19 pandemic. Now,
many builders are limited by their ability to find qualified labor.
Another major challenge is a staggering increase in the cost of materials. Pandemic-related
supply chain shortages have been a significant driver, with home building material costs rising
on average 20% on a year-over-year basis. The price of framing lumber alone has tripled since
August 2021. 13
These trends add tens of thousands of dollars to the cost of a typical home. Factors like a lack
of buildable land in many areas, restrictive zoning, and a shortage of developers are also
contributing to the issue. 14
Most homebuying experts agree that the lack of inventory is the primary factor driving rising
housing prices and unprecedented competition for homes. With available housing units near
four-decade lows, the end of the current housing boom is not yet in sight. 15
What does it mean for you?
Prospective buyers should be prepared to compete for a home, since low inventory can lead to
multiple offers. You may also need to expand your search parameters. If you’re ready to look,
we’re ready to help.
For sellers, the picture is rosier. In this strong market, your home may be worth more than you
realize. Contact us to find out how much your home could sell for in today’s market.
WE’RE HERE TO GUIDE YOU
While national real estate trends can provide a “big picture” outlook, real estate is local. And as
local market experts, we can guide you through the ins and outs of our market and the local
issues that are likely to drive home values in your particular neighborhood.
If you’re considering buying or selling a home, contact us now to schedule a free consultation.
We can help you assess your options and make the most of this unique real estate landscape.
Sources:
1. Marketwatch - https://www.marketwatch.com/picks/home-price-appreciation-will-normalize-what-5-
economists-and-real-estate-pros-predict-will-happen-to-home-prices-in-2022-01646940841
2. Bankrate -
https://www.bankrate.com/mortgages/mortgage-rate-forecast
3. CNBC -
https://www.cnbc.com/2022/04/16/heres-how-much-the-same-mortgage-costs-now-compared-to-last-
year.html
4. Fortune -
https://fortune.com/2022/03/23/housing-market-interest-rate-economic-shock/
5. National Association of Realtors -
https://www.nar.realtor/blogs/economists-outlook/instant-reaction-mortgage-rates-april-07-2022
6. Fortune -
https://fortune.com/2022/03/16/home-prices-2022-2023-bank-of-america-forecast-mortgage-rates/
7. Fortune -
https://fortune.com/2022/03/07/what-home-prices-will-look-like-2023-fannie-mae/
8. Fortune -
https://fortune.com/2022/03/17/home-prices-drop-housing-markets-california-michigan-massachusetts-
corelogic/
9. CNN -
https://www.cnn.com/2022/03/23/success/us-national-rent-february/index.html
10. MarketWatch -
https://www.marketwatch.com/story/home-prices-increase-at-one-of-the-fastest-rates-on-record-but-higher-
mortgage-rates-should-slow-future-growth-11648559497
11. Realtor.com -
https://www.realtor.com/research/us-housing-supply-gap-expands/
12. NPR -
https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain
13. Investopedia -
https://www.investopedia.com/housing-market-dips-in-early-march-2022-5222449
14. NPR -
https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain
15. Fortune -
https://fortune.com/2022/03/14/housing-market-key-metric-inventory-zillow-bad-for-buyers/
