Wow, 2021 was a wild year! With so much happening across the country and costs on the rise, you might be wondering how it’ll impact real estate in 2022.
Will we see more skyrocketing home values? How will the real estate market shake out in our current economic climate? Whether you’re selling, buying or staying put, here are the 2022 real estate trends to watch!
Real Estate Trend #1: Slim Pickings for Home Buyers
Okay, this is probably the hardest real estate trend to swallow—so brace yourself: Inventory is incredibly low! Inventory (aka the total number of unsold houses) was down just over 16% in November 2021 compared to the previous year. 1
That’s partly because a ton of people are looking to buy right now. It’s also because fewer sellers are listing their houses for sale. 2 However you slice it, there just weren’t many houses for sale over the year, so it was harder to meet buyer demand.
But don’t worry, we’ll walk you through what to expect if you enter the market.
What Slim Pickings Mean for Buyers
Low inventory means you need to be on your toes when you go house hunting because the best homes will likely be snatched up fast. Near the end of 2021, most homes spent 47 days on the real estate market—around 10 days less than the past year. 3 And it looks like homes will keep selling quickly in 2022.
Find expert agents to help you buy your home.
That doesn’t leave much time to hem and haw over your home search. If you want to find a good home in this slim market, here’s some advice:
- Sacrifice some wants. If you can’t find the house you want, be willing to give up some “nice-to-haves” for your “must-haves.” Find the least expensive home in the best neighborhood you can afford and upgrade over time.
- Expand your search. Is the location where you plan to buy too competitive? You might be surprised at the gem you can find in a less popular neighborhood. Working with a real estate agent who really knows the area is the best way to find a home that fits your budget and lifestyle.
- Get preapproved ASAP. Getting preapproved for a mortgagebefore you go house hunting is a must in any market. And it’s even more important when home supply is low. If you don’t do this legwork ahead of time in a market like this, you could give a preapproved buyer free rein to swipe the home you want right out of your hands.
What Slim Pickings Mean for Sellers
If you’re selling a home, low inventory means less competition! You can probably expect to see offer letters flooding your mailbox like Harry Potter’s acceptance letters from Hogwarts—especially if your home is in a great location or has features that buyers want.
Even if your home isn’t quite so appealing to buyers in a regular market, you stand a better chance in the current real estate market. Since your home will be one of the (relatively) few listed on the market, you could have the upper hand when it comes to negotiations and the final sales price. So enjoy possibly getting multiple offers, picking the best one, and moving at a pace that suits your timeline.
But if you’re buying a new home after your current home is sold, you probably won’t be in the driver’s seat anymore. Decide on plans for your next home before you sell.
Real Estate Trend #2: Home Prices Are Still Rising
Next up: home price trends. In the current real estate market, prices are going up—just like groceries, gas and basically everything else. The national median home price increased to $363,700 by the end of 2021! 4 That said, the rate at which they’re increasing slowed down toward the end of the year.
From April to June of 2021, home prices rose nearly 23% higher than they were during the same time in 2020. 5 But home prices were just 16% higher from July to September of 2021 than July to September of 2020. 6
Both of those real estate trends will likely continue in 2022: Prices will likely go up more slowly than they did in early 2021, but they will keep going up.
Sellers, this should put a big smile on your face! And hang tight, buyers—we have some advice for you too.
What Higher Prices Mean for Buyers
If you’re going to buy a home in this expensive market, you absolutely have to know how much house you can really afford. Commit to staying within that budget no matter what—don’t cave to the pressure to buy because you’re tired of watching competitors pluck good homes off the market.
We know waiting on the right home in your budget can get frustrating. But you’ll be glad you did it when you have financial peace instead of a big, honking headache of a mortgage!
To feel confident about buying a home this year, follow these tips:
- Limit your house payment to no more than 25% of your monthly take-home pay. This payment includes principal, interest, property taxes, homeowners insurance and, if your down payment is lower than 20%, private mortgage insurance (PMI). Plus, don’t forget to count homeowners association (HOA) fees in your budget.
- Save at least 10–20% for a down payment. We recommend at least 10%, because anything less will drown you in extra interest and fees. Putting 20% or more down is even better because you can avoid paying PMI—an extra fee added to your mortgage to protect your lender (not you) in case you don’t make payments. Saving a big down payment like this is possible! You just have to stay patient and focused. Who knows? You might even be able to save for a five-figure down payment by this time next year!
- Choose a 15-year fixed-rate conventional mortgage. The lowest cost home loan is a 15-year fixed-rate mortgage. Rip-offs like the 30-year mortgage, FHA, VA, USDA and adjustable-rate mortgages will charge you tens of thousands of dollars extra in interest and fees and keep you in debt for decades. No thanks!
Now crunch the numbers with our free mortgage calculator to figure out a monthly payment your budget can handle. And then work with an expert agent to find houses for sale within that budget.
For more help buying a home in this crazy market, check out our free Home Buyers Guide. It has all the answers you need to buy a home with confidence.
What Higher Prices Mean for Sellers
A nice profit may be on the horizon! And that’s great news because you’ll really want that extra money when buying your next home. To get the best offer for your home, work with an experienced agent who really knows your local, current real estate market.
And be sure to wait for the right offer. Some buyers may try to gut punch you with a low number. If you aren’t in a hurry to move, wait for an offer that gives you the most profit. Remember, the less desperate person always has the upper hand when negotiating.
Real Estate Trend #3: Mortgage Interest Rates Are Still Super Low
The average mortgage interest rate (the fee lenders charge as a percentage of your loan amount) has been nice and low lately.
In fact, the average rate for a 15-year fixed-rate mortgage dropped to 2.2% in January 2021—the lowest it’s been since Freddie Mac started reporting 30 years ago! 7 Those rates hung out anywhere between 2.15% and 2.4% for the rest of the year. 8 That said, they started rising again toward the end of 2021, so look for them to go up slightly in 2022 too.
Economist geeks think the Federal Reserve will hike interest rates up to around 3.5% for 30-year fixed-rate mortgages in 2022. 9 By the way, that’s a big reason we only recommend 15-year mortgages: They tend to have lower rates than 30-year mortgages, and since they end 15 years sooner, you’ll pay less interest over time. That’s a one-two punch when it comes to saving money!
If you want to refinance or get a mortgage from a trustworthy lender who actually cares about helping you pay off your home fast, talk to our friends at Churchill Mortgage.
What Lower Rates Mean for Buyers
Sure, interest rates are low right now—which can help with affordability. Just don’t let that pressure you into buying a house you aren’t ready for. A super low interest rate on a house you can’t afford is still a bad deal.
So remember to stick to our advice on monthly payment limit, down payment amount and mortgage type (see Real Estate Trend #2) and you’ll be in great shape!
What Lower Rates Mean for Sellers
If interest rates stay low, buyers will be more motivated to buy your home sooner than later. But if interest rates do start to increase, just plan for your house to be on the market a little longer.
And if you don’t plan on moving anytime soon, you might still be able to take advantage of these super low interest rates and shorten your payment schedule by refinancing your mortgage.
Real Estate Trend #4: Online Real Estate Services Are Growing
No doubt you’ve heard of real estate services like Zillow that let you browse or list homes for sale online. But did you know online services now offer to buy and sell your house for you?
Here’s how the new iBuying trend works: You tell companies like Opendoor about the house you want to sell. They buy it from you, pump some money into it to resell at a higher price, and handle all the home processing stuff like inspections, repairs and home showings.
These companies promise you less hassle and charge you pretty much the same as an agent commission for selling costs—but it’s not all rainbows and sunshine. Some of these companies include an additional service fee (icing on their cake), which may mean less profit for you.
Worst of all, you don’t get the benefit of working with a top-notch agent who actually knows the current real estate market in your area and could sell your home for more money.
Using a “Virtual” Agent
Hybrid services like Redfin aim to reduce traditional agent commissions by handling things online. This gives you partial services that are similar to working with an agent but for a fraction of the cost. Think of it as a middle ground between selling with an agent and selling by yourself. But when selling a home, be wary of the middle ground. Your home is your biggest asset, and you get what you pay for!
Mobile or Online Closings
In related news, digital technology also makes it easier to handle buying and selling documents virtually. For example, many home transactions now use electronic signature apps and remote online notarization to streamline the process. 10 In other words, you could buy or sell a house this year without getting out of your car or ever changing out of your bathrobe and slippers.
You can expect to see more of these trendy digital services in real estate in 2022. Just remember not to get swept up in every hot new trend: Use your brain, your budget and a great professional real estate agent to make sure you’re getting the best deal on the right house for you.
Real Estate Trend #5: Risky Buying Options Are More Accessible
Okay, let’s cover some other trending, “creative” ways to purchase a home (beware!).
If you’re itching to buy a home but can’t quite afford it yet, some sellers like Divvy offer a rent-to-own agreement. In this (bad) deal, you agree to rent the home for a while—anywhere from several months to several years—before becoming the owner.
The “plus” side of rent-to-own is that you can get into a house fast, without waiting to save a down payment. (But you know how we feel about that.) Also, you don’t have to qualify for a mortgage right away.
The downside of rent-to-own is that it makes your rent more expensive because some of your monthly payment will go toward future homeownership. With rent prices increasing across the country, now’s not the time to pay even more!
And if you later decide you don’t want to buy the house or something happens to break your contract (like you don’t get approved for the mortgage), you won’t get all those extra payments back. They will have been a waste! Plus, you may have to handle repairs and maintenance yourself, even while renting. This option leaves you in a very vulnerable place financially.
Bottom line: If you can’t afford homeownership yet, don’t buy one. Keep saving for that down payment and wait until your financial ducks are in a row. It’ll happen sooner than you think if you’re willing to work at it!
Down Payment Loans
Another risky real estate trend to avoid is taking out a personal loan to fund a down payment. That’s the same as buying a home with 0% down. You borrowed the entire cost of the house—except now you borrowed it from two different companies at two different interest rates (which means twice as many headaches).
Purchasing a home with no money down is never a good idea. Remember, you want a down payment that covers at least 10–20% of the home’s value. Buying a house with anything less will rob you of your other financial goals by having you pay too much extra in interest and fees. Thankfully, not many mortgage lenders allow you to do this—plus, it can even disqualify you from getting the amount of mortgage you need.
What if I’m Not Buying or Selling a Home This Year?
You may be thinking, All this is great, but I’m not going anywhere anytime soon. We hear you, and here are the real estate trends you should watch for now:
1. Equity probably won’t decrease through 2022.
With most current real estate markets at low risk for a downturn, experts agree that home prices (and therefore home values) will continue to rise—although they vary a little in how much they expect things to change. Freddie Mac believes home prices will continue to rise in 2022—by 7%. 11 The National Association of Realtors ® (NAR) thinks price growth will be less than 6%. 12
This is still good news for you because you’ll likely make a nice profit if you do decide to sell. And if you decide to stay put? More equity means a higher net worth! Continue to monitor how much your home is worth to make sure your equity (what your home is worth minus how much you owe on it) is going up.
2. A real estate market crash looks unlikely.
With all the uncertainty behind everything that happened in 2020 and with home prices growing a little slower in 2021, you might be wondering if the housing market could collapse. Well, it’s impossible to know for sure, but economists suggest a housing crash is unlikely.
After all, the super low mortgage rates are motivating buyers to enter the market, which increases demand. But there’s still a very low supply of home listings. This keeps home buying competitive and allows home price growth to soar.
3. Regardless of your neighborhood, buyers are interested.
Since home prices have experienced rapid growth over the past few years, some buyers may be less choosy. In fact, determined ones might be willing to consider neighborhoods that don’t have easy access to highways or aren’t close to a big city. If you think you live in an unpopular neighborhood or believe your home isn’t what buyers are looking for, think again. Now may be your perfect time to consider selling your house.
Take Control of the Real Estate Trends With a Top-Notch Agent
Whether you’re selling or buying, you can take advantage of the current real estate market trends by partnering with a professional real estate agent.
Through our Endorsed Local Providers (ELP) program, our team will match you with top-performing agents we recommend in your area. These real estate ELPs have earned our seal of trust by actually caring about your financial goals. (That’s why we call them RamseyTrusted!)
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.