2022 Market Predictions: Is a crash coming next?

The biggest market question hovering in the air right now, no matter where you live, is how is the housing market doing and will it crash in 2022?  The simple answer is that it will not crash this year. There I said it. I don’t like making absolute statements like that, but the forecast for the next 12 to 14 months clearly shows that most likely the housing market is expected to stay robust.  Last year, homeowners found themselves in a market where their houses sold extremely quickly and often for above the asking price.  Supply and demand at its finest, most buyers ended up in bidding wars, and often times buyers would be making offers on several properties before finding themselves the winner of said bidding war.

Note: One caveat is if there is something external to the housing market which causes a DEEP recession, but even then, the demand might overcome this event. 

We are coming off a year in which the price of homes in the United States increased by an incredible 18.8%.  And the market is actually even tighter now than it was before the spring 2021 housing frenzy.  Even Zillow has predicted that the year-over-year rate of home price growth will hit 22%!  That’s historically unprecedented!  By this time next year, the typical U.S. home is expected to be worth almost $400,000.  This outlook prediction is driven by Zillow’s expectation that the current market conditions will persist, with demand for houses far exceeding the supply of available homes.

Most experts agree that housing demand will stay strong throughout 2022.  Spring and summer will likely see an increase in listings, but it is unlikely that there will be enough inventory to meet the demand.  This shortage of listings has created the current trend of houses sometimes selling within hours of being listed.  In fact, the average amount of time that a house is currently on the market is less than 15 days and in most better markets it’s less than a week. 

What about the impact of mortgage interest rates?  Data shows that mortgage interest rates are on the rise (they got hammered late March), which is a challenge that investors and buyers will need to address.  Although rates are not outrageous by historical standards, they are higher than they have been in years – predictions indicate that rates on a 30-year fixed-rate mortgage are likely to hover around 5.5% by the end of the year.  But even with increasing mortgage rates AND higher home prices, the housing market would remain a seller’s market due to you guessed it… high demand and lower inventory.

Something else rarely discussed among real estate professionals is the fact that the Great Recession is still having a strong effect on the housing market. What do I mean? Every decade since the 1950s, this country has built 20 million + homes. From 2010-2020, this country built around 5 million. Toss in a pandemic and gunk up supply chains and experience a labor shortage and here we are. There are a lot of factors causing these that are the less talked about.  There just aren’t enough homes. 

The bottom line?  When the demand is satisfied, prices will stabilize & decline.  The housing market is in far better shape than it was a decade ago.

So… is now the time to buy?  There are always unforeseen variables that can alter the trajectory of the market at any time, so the best strategy is as true now as it ever has been: make sure you can afford the house you buy and still have room to save up for rainy days. Conventional wisdom still rings true… even today. 

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