The 2021 housing market was red-hot, and many people who were eager to buy a home inevitably had to put those plans on hold when soaring home prices made that impossible. This year, we're starting off in a similar spot -- only without record-low mortgage rates to help offset higher home values.
As of January 2022, the median existing home's sale price was $350,300, reports the National Association of Realtors. That's a jump of 15.4% compared to a year prior.
For buyers to be paying that much more for homes, it's clear that demand is still strong. But will that trend continue into 2022? Or will demand for homes finally start to wane?
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Mortgage rate hikes could drive buyers away
Right now, the average 30-year mortgage rate is sitting at around 4.5%. Considering that the 30-year loan didn't even hit 4% at any point in 2021, that's a pretty intimidating number -- especially at a time when home values are so high.
But it's not just that mortgage rates are up right now. Rather, borrowers should expect rates to climb higher as 2022 chugs along. We can thank the Federal Reserve for that.
The Fed recently raised its federal funds rate and plans to implement more rate hikes this year. And while the Fed doesn't set mortgage rates, its actions tend to influence them. As such, it's fair to assume that borrowers will pay more to finance a home in the coming months.
It's also fair to assume that rising mortgage rates will result in some degree of buyer pullback. Whether that pullback is extreme enough to cause home prices to fall to a meaningful degree is yet to be determined. But there's a chance that we will see a gradual cooling of prices in the course of the year.
Of course, housing inventory will also determine whether home prices come down. Right now, we have a classic low-supply, high-demand situation that's working to sellers' advantage. But if more homes hit the market this year, buyers will regain some bargaining power, thereby driving home prices in a more favorable direction for those on the purchasing end.
Cash offers will still be king
Whether your intent is to buy a home as a place to live or as a real estate investment, one thing you should know is that in today's housing market, cash is king. If you're able to make a cash offer on a home -- even if you end up mortgaging it after the fact -- you'll give yourself an edge over competing buyers who are reliant on financing to complete a home purchase.
That said, cash offers may not be so easy to make these days. Many real estate investors also have stock portfolios they look to when a need for cash arises. And right now, with the stock market being down, it's not a good time to liquidate investments to free up money for homebuying purposes. But if you are able to offer up cash, you'll increase your chances of beating out other buyers at a time when housing inventory is still at a major low.
