3 Predictions for the Housing Market That Might Make You Reconsider Real Estate

Who could have guessed that the real estate market would have such an upturn since the beginning of the pandemic? Some experts believe they could be looking at the elements that affect housing purchases. And several professionals in the industry are making predictions for 2022 and beyond. 

The housing market is rarely steady, since supply, demand, and other factors influence its direction. Recessions, wars, and significant events can undoubtedly change how individuals use their money, but microeconomic incidents – like emotions and opportunity – can be just as impactful. 

To get insight into the market’s future, you should know how multiple factors can impact one another. The soaring unemployment rate in 2020, for example, could have been a sign of forestalled real estate transactions. But the lower prime rate and remote work opportunities made homeownership more affordable to many.  

The Sellers’ Market Will Continue to be Hot

A seller’s market means that real estate transactions are more favorable for the seller. There are usually more buyers (and more demand) than sellers (providing the supply).

This leads to a few characteristics: 

  • Listing prices are higher
  • Homes sell faster
  • Buyers have less negotiation room.
  • Bidding wars are more likely

The United States has been in a seller’s market for the last two years since the pandemic created almost perfect conditions.

For instance, the federal government dropped the prime rate – the lowest interest rate for borrowers with prime credit scores between 620 and 799 – to stimulate the economy during the early stages of the pandemic. Lower mortgage rates make homeownership more affordable, and more buyers increase the demand for housing.

Sometimes, self-fulfilling prophecies come true. People may feel pressure to buy if they believe real estate will continue to grow. A larger number of buyers increases the competition and can drive up listing prices. So, a fear of missing out on a good investment or homeownership altogether can make the real estate industry favorable to sellers. 

Individuals may continue to move out of cities and into more affordable areas if businesses accept remote workers as the new normal. Conversely, workers may move to a new area to be closer to their jobs now that they commute. 

The Housing Market Will Slow and Switch to a Buyers’ Market 

Just as the lower prime rate increases loan affordability, a higher prime rate can decelerate homeownership. The government increased the prime rate in 2022, and many speculate it may rise again before the end of the year. 

The median home listing price has increased more than 27% since pre-pandemic. Individuals looking to buy now may find they have been priced out and wait for listings to return to historical amounts. 

The temperature is not the only thing that cools down in the winter. The real estate market slows during the end of the year as holidays and vacations approach. Instead of a fear of missing out on a good investment, individuals may wait for the table to inevitably turn.

We’re Headed for Another Housing Bubble 

Just before the 2008 housing crash, the market experienced a more than 14% increase, which is why some investors are hesitant about the optimistic forecast. Housing bubbles occur when long periods of demand outweigh the supply.

The bubble pops when the prices no longer reflect its actual worth. This can occur when the supply quickly exceeds the demand or following an economic downturn. 

Soaring lumber prices (up more than 300% since before 2020) and other materials – like concrete, paint, and windows, increase costs for new homes. New construction projects are also experiencing material and labor shortages. 

Supply disruptions and high labor and materials costs are among the economic reasons for sustained housing prices at the current median. The listing price reflects the builders’ expenses and losses, and buyers could have a loan much higher than the home’s actual value.

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