3 Reasons Buying a Home Could Get Harder in 2022
Buyers may need to brace for an uphill battle.
- Today's housing market is among the most challenging buyers have ever seen.
- There are several factors that could make it difficult for buyers to achieve their goals this year.
To say that 2021 was a tough year to buy a home would be an understatement. Last year, buyers were forced to grapple with record-high home prices and low inventory. But 2022 may not end up being much better on the home-buying front. Here are three reasons why buyers might really struggle to purchase property this year.
1. Mortgage rates could continue to climb
Mortgage rates have risen sharply since the start of the year. And there's reason to believe that trend will continue.
The Federal Reserve has plans to raise interest rates multiple times this year. And while the Fed doesn't establish consumer borrowing rates (rather, it sets the federal funds rate), it can influence the direction they go in.
If mortgage rates continue to rise, the cost of borrowing might become prohibitive. Of course, there's always the option to purchase a home in cash. But that's something many buyers can't swing, or wouldn't want to, due to the risks of tying up money in an asset that's not so easy to sell.
2. Inventory might remain stagnant
As of the end of February, there were only 870,000 housing units available for sale, according to the National Association of Realtors (NAR). That represents a 1.7-month supply of homes.
For context, it takes a 4- to 6-month supply of homes to create an equalized housing market. In today's market, that lack of inventory gives sellers a clear upper hand.
Unfortunately, there's a good chance housing inventory will remain stagnant this year. While we can be hopeful that the worst of the pandemic is behind us, some sellers might hesitate to list their homes until COVID-19 cases fall even further in their area. And if housing inventory doesn't increase, we shouldn't expect any downward movement on home prices.
3. Home prices could still increase
In February, the median existing home sale price rose to $357,300, reports the NAR. That's a 15% increase from February 2021.
While some housing experts think that rising mortgage rates will result in decreased buyer demand and a drop in home prices, that's not guaranteed to happen. In fact, if inventory doesn't pick up, a lack of supply across the residential market could drive home prices up even more.
Last year, home prices were quite inflated, but buyers at least had low mortgage rates available to them to help offset those higher costs. This year, borrowing is already a lot more expensive, and the combination of higher home prices and mortgage rates could force a lot of buyers to have to put their plans on hold.
Hope for the best, but prepare for a challenge
Perhaps mortgage rates don't continue to rise this year, housing inventory picks up nicely, and home prices start to fall to more moderate levels. But today's buyers unfortunately can't bank on any of that happening. And so those looking to purchase a home this year may need to gear up for a pretty challenging experience.
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