The agreement of much of the real estate industry was that the spring housing market, which happens to be the industry’s peak season, would be less frenzied this year. At least that was the thought when ushering in 2022. The consensus was that it couldn’t get much worse than spring of 2021 when over 70% of home listings saw a bidding war.
Unfortunately for potential homebuyers, those agreements have shifted. The spring market is predicted to be red-hot but what’s more is that there is a chance it could be the hottest spring homebuying season on record as bidding wars are picking up again.
U.S. home prices soared to an unsustainable 18.8% in 2021. How could the market get any hotter?
In 2020 when the covid-19 pandemic began, many real estate groups predicted the housing market would enter a slump, but the opposite happened. By the summer, the market was booming as first-time millennial buyers rushed in to buy, encouraged by record low mortgage rates and the shift to working from home. The rise in demand from these potential buyers saw inventory shrink. By the following year, inventory dropped 32% from the pre-pandemic levels. Buyers exceeded the number of homes for sale causing bidding wars to begin.
Many industry experts were looking forward to inventory leveling out. It was expected that elderly homeowners who were cautious during the pandemic along with those who were facing financial struggles would list their homes.
The number of homes began to shrink again in November of last year after seeing a brief rise in the fall. Inventory levels in January 2021 were 42% below January 2020 levels. Zillow tracked 327 housing markets and saw 254 have inventory levels down by more than 30%.
Zillow forecasted the yearly rate of home price growth would decrease by 11% by the end of this year. However, in January Zillow revised its prediction and expects the year-over-year rate to peak at 21.6% in May and end the year at 17.3%.
Zillow’s prediction is the highest by several points. Other industry leaders like Fannie Mae and Freedie Mac predicted a 7.9% and 7% jump respectively. Meanwhile Realtor.com predicts 2.9%. The Mortgage Bankers Association’s forecast model projects a 2.5% decline by the end of 2022 in the median price of existing homes. Many of the predictions can be taken for what it is, just a prediction as none of these organizations predicted the historic rise in home prices over the past couple of years.
The biggest reason for the less conservative outlook is due to the lower-than-expected inventory levels and a rise in mortgage rates. At the end of 2021, the average 30-year fixed-rate mortgage was 3.11%. Last week saw the 30-year rate up nearly 1% at 3.92%.
The rise in mortgage rates could slow the housing market a bit since it would like price many buyers out of the market. But it’s likely the impact will have the opposite effect. Many buyers will rush into the market worried they will miss out on lower rates.