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Buying a House in 2022? Consider These 4 Factors

By Aly Yale – Nov 12, 2021 at 6:45AM

Key Points

  • The market will likely be closer to normal next year, but buying a house won't come without challenges.
  • Low inventory and rising mortgage rates may make buying more difficult for some.
  • Preparing for these challenges now can help ease the homebuying process when the time comes.

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If buying a house is on your radar for the new year, keep these factors in mind.

If buying a house is on your radar for next year, it's time to start preparing.

While it's unlikely the market be as crazy as it was in 2021, you may still face some headwinds along the way. And understanding what you're up against can lead to a better shopping and buying outcome.

Here are some factors to keep in mind.

A couple sitting in their new house surrounded by boxes

Image source: Getty Images

Mortgage rates probably will be higher

The Federal Reserve just announced it will start trimming its purchases of bonds and mortgage-backed securities in the coming months. Inevitably, that will mean higher mortgage rates (and higher payments) for the average homebuyer.

According to the Mortgage Bankers Association, rates on 30-year loans will likely increase to 3.3% in the first quarter of next year and reach 3.7% by the third quarter. If that 3.7% becomes a reality, a recent analysis from mortgage insurer First American shows that homebuying power would drop by about $49,000 per borrower.

While this doesn't necessarily mean buying a home will be impossible next year, it does mean you can expect to pay more or will need to lower your price point to account for the higher costs of financing.

There will be stiff competition among homebuyers

Demand for housing isn't going anywhere. There's a huge shortage of housing, along with would-be buyers waiting to jump in. Many of them also have the flexibility to move and work from anywhere, taking advantage of the wide acceptance of remote work brought on by the pandemic.

There are also demographics to consider. Millennials are in their prime homebuying years and have made up the largest share of buyers during the past few years. Boomers, on the other hand, are at the downsizing stage. This creates lots of competition -- particularly for smaller and entry-level homes.

In short: Be ready for a bidding war and come prepared, particularly if you're eyeing a starter home. Waiving contingencies, increasing your offer price, or adding in an escalation clause, which automatically increases your offer (to a certain point) if you're outbid, can all help you be more competitive.

Your home might not appreciate as fast

One upside to next year is home prices aren't projected to rise as fast. While that will help on the front end, once you own a home (or rental property or whatever else you're buying), that house will appreciate more slowly as a result.

That means it takes longer to see a return on your investment. That's not to say you won't make a profit if you sell the home in a year or two. You just won't reap a windfall. By most projections, home prices are expected to appreciate anywhere from about 2% to 7%. On a $200,000 house, that works out to a return of about $4,000 to $14,000.

Your housing choices may be limited

Housing starts and construction have ticked up, and more foreclosures are starting to hit the market, but there probably won't be a major surge in homes available for sale. After all, the market's supply is almost 4 million homes short of demand, according to Freddie Mac, and that's a pretty steep hurdle to overcome.

That suggests you can probably expect to make some compromises if you're purchasing a home, just as buyers did this year. That might mean offering more than the asking price, considering smaller homes or alternate property types (townhomes), or widening your search geographically.

Buying a home next year? Start prepping now

Buying a house may be a bit easier in 2022 than it was this year, but you'll still have some challenges to face. Fortunately, most of those are surmountable with a little preparation and a good plan. Start working on your budget now, find an agent who can help you be competitive, and separate your must-haves from your nice-to-haves. From there, it's all about patience and perseverance.

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