The housing market may not reach the amazing depths of 2021, but Zillow economists predict it will be anything but slow next year.
Expect the strong seller’s market to persist, the Sun Belt to maintain its top spot as the most in-demand region, and flexible work options to continue to shape housing decisions in new ways in 2022, according to a Zillow news release.
Housing Predictions for 2022:
2021 marked the hottest housing market in U.S. history by some measures, including Zillow’s Home Value Index. While we may not see those records broken in 2022, Zillow economists expect incredibly strong price growth and sales volume to continue.
Zillow’s forecast calls for 11% home value growth in 2022. That’s down from a projected 19.5% in 2021, a record year-end pace of home value appreciation, but would rank among the strongest years Zillow has tracked. Existing home sales are predicted to total 6.35 million, compared to an estimated 6.12 million this year. That would be the highest number of home sales in any year since 2006.
Sellers Still Maintain Upper Hand
The usual seasonal cooldown in the housing market is reappearing this fall after a hiatus in 2020. Fewer homes are selling above list price, homes are staying on the market a few days longer than they did during the summer, and more sellers are cutting their prices.
Zillow economists expect these metrics to trend slightly cooler in 2022, but don’t mistake that for a buyers market. The market forces that have given sellers the upper hand over the past two years or so — tight supply after years of underbuilding, and elevated demand due to remote work, U.S. demographics, and low mortgage rates — will persist next year as well. Expect to see bidding wars on many homes, especially as the market heats up during the spring and summer shopping season.
Rentals to be in High Demand
Rising home values will impact the rental market as well. After a slowdown in the early months of the pandemic, rent prices came roaring back, especially in what were previously some of the most affordable markets. As rising costs make it harder to save for a down payment, expect demand for larger rentals to increase, including for single-family homes, as families stay in the rental market longer.
The ‘Sun Belt Surge’
2021 was in many ways the year of the Sun Belt. Zillow predicted Austin would be the hottest market of 2021 as part of a “Sun Belt surge,” which proved to be the case — no metro has seen home values grow more than Austin so far this year, and all of the top destinations for long-distance movers were in the Sun Belt.
Zillow predicts this surge will extend to smaller Sun Belt cities in 2022 as price hikes in this year’s star markets make more-affordable nearby markets more attractive. From April to August, Austin held the top spot in quarter-over-quarter home value growth, which is a good indicator of current housing demand. As of October, the smaller Florida metros of Fort Myers and Sarasota held the top spots, and 24 of the top 25 markets were in sunny states – a sign of things to come in 2022.
More Gen Zers and Millennials will Buy
Americans are taking advantage of remote work flexibility to move to larger homes in more-affordable markets, but many will not want to commit to a new location full-time. This is often true for younger people who are attracted to the amenities of living in a city, where expensive housing is more likely to put homeownership out of reach.
With these factors in play, there may be more people buying what’s traditionally a second home — either a part-time vacation home or an investment property — before they buy a home as a primary residence, all according to the news release.
Young people today are savvy watchers of the housing market, in part because of time spent Zillow surfing. Purchasing a “second” home in a market more affordable than the one they live in is a way to break into the market and start building equity while mortgage rates are low, possibly teaming up with friends or family to lessen the financial burden.
Renovation Boom to Continue
In the race to buy a home in the ultracompetitive pandemic housing market, many buyers have had to make one or more compromises (81%).i As prices and mortgage rates rise, expect many homeowners to upgrade their existing homes rather than try to wade back into the market to trade up.
A Zillow survey of homeownersii found nearly three-quarters would consider at least one home improvement project in the next year. The top projects on their to-do list are renovating a bathroom (52%) or kitchen (46%), adding or improving a home office space (31%), finishing a basement or attic (23%), adding a room (23%) or adding a separate dwelling unit (21%).
Work Key Role in Moving Decisions
The rise of flexible work options has changed how heavily a short commute factors into where Americans live. Homebuyers used to pay handsomely to live near downtown and reap the benefits of a quick trip to and from the workplace each day, but that dynamic flipped in much of the country last year as buyers prioritized affordability and extra space. In 2022, hybrid and fully remote work will continue to reshape which areas are most in-demand as the pandemic winds down and more workers receive permanent guidance on their flexible work options.
Zillow economists expect fully remote workers to continue to seek affordable markets, like those in the Sun Belt and other nontraditional housing hot spots where they can afford to buy their first home or trade-up for a bigger one. And amid the “Great Resignation” and a generally aging population, traditional retirement markets are likely to see elevated demand, the news release added.
The reason home prices are rising so quickly is economics 101: high demand and low supply. Zillow’s research shows that in the 35 largest housing markets alone, there has been a shortfall of 1.35 million new homes since 2008 because of a construction slowdown following the housing crash. Homebuilder confidence is sky-high, and builders are doing all they can to get houses up, but supply chain snags and labor shortages are limiting progress. The gap shrunk in 2021 and will likely shrink again in 2022, but the housing shortage will be a defining feature of the market once again next year.
i Zillow Population Science Perspective and Successful Buyer Intentions Survey, 2021.