September 29, 2022

StrategisChhr

Skillful Business Crafters

Opinion: Buyers, get ready for another crazy housing market next year

Just as baby boomers are hitting retirement, more millennials are reaching peak first-time homebuyer age, and they’re all competing in a market starved for inventory. While the market will slow a bit from the surge in demand it saw in 2021, sellers will remain in control. For prospective buyers, there will be bidding wars, difficult tradeoffs and frustration.

Zillow expects more than 6 million people to buy a home in 2022 (which is right around the number we expect to see this year), many of them for the first time. To be sure, the obstacles they will face are many. The continued intense competition will add upward pressure to home prices, making it especially difficult for first-time buyers to afford a home. They not only need to save enough for a down payment — which has gotten harder over the past few years — but may need to win a competitive offer against a repeat buyer armed with equity from a previous home purchase. When presented with multiple offers, an all-cash offer is most likely to stand out to a home seller, agents say. That’s simply not an option for many who are buying their first home.

Some of the pent-up demand will surely spill over into the rental market, with many households on the lookout for bigger rental homes, perhaps with a yard for their dog or an extra bedroom for an office or a growing family, adding pressure to the single-family rental market.

Here are three factors that will influence buyers’ decision as they head into the new year.

Inflation

Rapid inflation will play a key role in housing decisions in 2022. While rising prices may squeeze budgets and prompt households to look for a way to save on housing costs, many buyers will see the fixed cost of a long-term mortgage as a hedge against inflation. And as rents continue to rise, and mortgage rates remain low, it’s likely that those who have the means for a down payment will choose to buy instead of rent, adding to the demand and keeping prices rising.

Remote work

Employers’ shift to remote work will play a role, too. The pandemic ushered in a new era in flexible and remote work, and even more people will have certainty next year about their employer’s potential new workplace policies. Buyers who no longer have a daily commute have a new freedom to separate where they live from where they work. This newfound ability to live anywhere and a desire for more space has prompted many moves to homes farther away from city centers, whether that’s to a far-flung suburb or a completely different area of the country.

Affordability

Prices rose so high so quickly in the hottest markets of 2021 — including Austin, Phoenix, Raleigh and Tampa — that affordability-conscious buyers will likely turn their attention elsewhere in the coming year, with smaller, more affordable markets — especially those in the Sun Belt — seeing a surge in popularity.
Inflation is out of control. It's time for the Fed to raise interest rates

Perhaps counterintuitively, this emphasis on affordable living may also mean buyer demand will be surging near some downtowns. Pandemic price gains in many suburbs mean the affordability benefits of moving out of the city are no longer as great. As local economies continue to recover and people become more comfortable with in-person activities during the continuing pandemic, the lure of city amenities should attract more buyers.

Despite the challenges, buyers wading into the market can take steps to increase their odds of success. They should be prepared with mortgage pre-approval and a solid list of features they can’t live with or live without so they can be decisive and move quickly when they find the right home. Home shoppers in especially hot markets should consider targeting homes listed below the maximum price they’re willing to pay in anticipation of making an above-list offer.

The high demand and low inventory we’re seeing push prices higher aren’t going away anytime soon, but historically low interest rates might. So buyers who are ready — both financially and personally — will have to stay persistent and aware that it could be years before we see a buyers’ market again.

https://www.cnn.com/2021/12/21/perspectives/zillow-housing-market-2022/index.html