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New year, new home? Forecast for the 2022 housing market

What we'll cover

  • What caused bidding wars on homes

  • How inflation can affect house prices

  • Considerations for home shoppers

As the New Year rings in, many of us will take the time to set new goals personally, professionally and financially. One goal might be to purchase a new home in the New Year. After all, we saw one of the most competitive U.S. housing markets in 2021, but will that trend persist in 2022?

Homebuyers are eager to find out how the market may evolve come January 1st and beyond. As they look to raise a glass to celebrate their purchase of a new house, what factors will be influencing homebuying in the new year?

Changing inventory

One of the most significant challenges homebuyers have faced over the past year was home availability. Lack of inventory on the market led to bidding wars on the relatively few properties for sale. Will fierce competition ease in time to accomplish your new year’s resolution of becoming a homeowner in 2022?

More homes have been slowly hitting the market. Combined with slower rising home prices, buyers may get a bit more breathing room to thoroughly vet and pursue homes as they’re listed, rather than making a mad dash to put in an offer as quickly as possible in an effort to snatch up a home before it’s gone.

In recent years, private equity firms and algorithm-based iBuyer platforms like Zillow flooded the market with cash offers, exacerbating competition and making it more difficult for the average homebuyer to land a property. But in a game-changing move in November 2021, the digital real estate behemoth announced the closure of Zillow Offers, its home flipping arm, which could lead to better access to their wealth of inventory across the country.

Other factors at play are the supply chain issues and labor shortages that have plagued a variety of industries in the wake of the pandemic. New home construction is no exception — with a squeeze on both materials and workers setting back the rate at which new homes are built. Keep in mind these constraints could slow the growth of inventory, especially if you want to build a new home in the coming year.

If you have cash on hand and are ready to buy, real estate is historically a reliable hedge against inflation.

Inflation concerns

Another major issue facing home shoppers is elevated inflation. The price of almost everything from gas to groceries is up — including homes. Over the past year, home prices increased a record 19.5%. According to Fannie Mae, median home prices are expected to rise in the new year but at a slower rate, with a prediction that home prices will rise by 7.4% in 2022. What's more, rent prices are expected to climb in the next year and even slightly outpace home price growth, making now a great time for first-time homebuyers to take a look at cost differences between renting and buying .

In response to inflation, anticipated benchmark interest rate increases will also increase mortgage rates. Fannie Mae forecasts mortgage rates to average 3.3% in 2022. While that’s up from rates in 2020 and 2021, it’s still extremely low by historical standards.

Your first impulse may be to see sky-high home prices as a deterrent, but buying a home actually hedges against inflation, especially when interest rates are low. National Association of Realtors Chief Economist Lawrence Yun points to the historical success of real estate as a strong buffer against inflation, noting that when inflation was as high as 7.1% in the 1970s, home prices outpaced inflation, rising an average of 9.9%.

If you have cash on hand and are ready to buy, real estate is historically a reliable hedge against inflation.

Resolve to become a homeowner this year

The new year is a great time for fresh beginnings and accomplishing goals. With low interest rates, increasing inventory and a safe bet against inflation, buying a home in 2022 is a worthy resolution.

Glenn Brunker is president of Ally Home, responsible for leading the growth of the company's mortgage business. He has oversight of the direct originations and bulk acquisition businesses as well as responsibility for the servicing platform. He also leads the secondary marketing and business line risk functions.

Glenn has extensive executive experience in leading banking operations, secondary marketing, production channels and all key risk functions. Before joining Ally in 2018, he held leadership roles in financial services at Bank of Oklahoma Mortgage, Fifth Third Bank, National City Bank and Oak Street Mortgage.

Glenn is a native of Chicago, and has a bachelor's degree from Northern Illinois University and an MBA from DePaul University. He currently lives in Charlotte, North Carolina.

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Image of Glenn Brunker, President of Ally Home.

Glenn Brunker
President, Ally Home

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