2021’s Competitive Housing Market Will Likely Continue in 2022

Economists revise forecasts to adjust for another year of low home inventory

Last year, US home sales surged to a 15-year high. Low mortgage rates and intense buyer demand powered this historic increase as the pandemic increased remote work and mobility.

All types of homebuyers were encouraged to purchase in 2021. First-time homeowners, luxury vacation-home buyers, and investors all took advantage of saving more money during the pandemic and benefiting from a rising stock market. 

The National Association of Realtors (NAR)’s 2021 Profile of Home Buyers and Sellers — released in late 2021 — reported that the annual share of first-time buyers was 34 percent. The rise of remote work and a generation of millennials entering their early and mid-30s added to the increase in homeownership in 2021.

Homes also sold faster than ever in 2021. Many homes were sold within a week of hitting the market, which forced buyers to make quick decisions about their home purchases. In December 2020, properties typically remained on the market for 21 days. The average was 19 days in December 2021, one day more than the 18 days seen in November. Seventy-nine percent of homes sold in December 2021 were on the market for less than a month.

High demand for homes in the first half of 2021 caused the supply of homes for sale to fall to a record low by December. At the end of December, the total housing inventory was down 18.0 percent from November and down 14.2 percent from one year ago. Although homebuilders are increasing supply, the gap will likely take years to correct. The number of homes currently under construction is at a multi-year high, but labor shortages and supply-chain issues have delayed builders.

In turn, the limited supply of homes for sale was followed by a dip in home sales. This drop broke a streak of three straight months of gains. “December saw sales retreat, but the pullback was more a sign of supply constraints than an indication of a weakened demand for housing,” said Lawrence Yun, NAR chief economist. “Sales for the entire year finished strong, reaching the highest annual level since 2006,” said Yun. Overall sales for 2021 increased 8.5 percent from a year earlier to 6.12 million. 

Low home inventory continues in 2022. In January, the number of homes for sale continued to lag well behind demand. The number of active listings on the market — which includes any home listed for sale, not just those that are recently listed, was down 28.4 percent in January 2022 compared to January 2021. It decreased 60.4 percent compared to the number of active listings in January 2020. New listings, which are those first placed on the market during the month, were also down by 9.1 percent compared to January 2021 and 17.9 percent compared to January 2020.

Realtor.com’s Monthly Housing Report shows that the 2022 real estate market is starting just as competitive as 2021′s.  Some experts are saying that the spring housing market might go down as one of the most competitive on record.

Housing economists, initially of the opinion that home sales would cool in 2022, are revising their forecasts and predicting another year of fierce competition and increasing home prices.

According to Realtor.com, the typical home sold in 61 days in January, which is ten days less than in January 2021 and nearly a month (29 days) faster than the usual pace of sales in January between 2017 and 2020, according to Realtor.com. In some of the hottest markets, such as Nashville, San Diego, San Jose, Denver, and Raleigh, homes sold in 36 days or less in January.

Fierce competition caused the housing market to see significant gains last year due to the supply and demand imbalance. In 2021, home prices grew at a record pace across the country last year. In December, the median existing-home price for all housing types was $358,000, up 15.8per cent from $309,200 in December 2020. This marks 118 straight months of year-over-year increases, the longest-running streak on record.

Zillow’s latest forecast finds home prices are set to spike 16.4 percent by December 2022.

Of course, as shown, forecasts are subject to change by events not anticipated. Yet to be seen is the effect of the Federal Reserve’s efforts to control inflation which may indirectly result in higher mortgage rates. 

However, if revised forecasts are realized, 2022 may be another brutal year for home shoppers.