Will the inventory of homes for sale rebound in 2022?
Original article by Paul Centopani can be found here
A for-sale desert
A serious lack of homes for sale over the last 18 months has made house hunting in 2022 quite a challenge.
It can feel like whenever you find a listing that meets your needs, your offer gets buried under a pile of competitive bids.
By late summer and early fall, there should be a bump in listings for buyers to look forward to.
Are more homes coming to the market in 2022?
In a normal year, available homes for sale become most plentiful sometime between July and September. While recent history has been anything but normal, 2022 could start heading in that direction.
“An inventory peak in late summer or early fall is the most likely scenario, given how the market returned to normal seasonal trends in 2021.”
–Jeff Tucker, senior economist at Zillow
"About 64% of prospective home sellers plan to list their properties by the end of August, according to a realtor.com report. In even better news, a 43% share of those selling have expected prices below $350,000 — the range most first-time buyers target — and 22% anticipate listing between $350,000 and $500,000."
~Len Kiefer, deputy chief economist at Freddy Mac
“Buyers have been thrown for a loop because of how frenetic the housing market is and how fast homes are selling. I anticipate we get a much more typical seasonal pattern this year; people start listing in the spring, and of course, activity heats up too. Then the homes that didn’t sell through spring and summer sit on the market and that’s where you see inventory pick up.”
~ Danielle Hale, chief economist at Realtor.com
“Our forecast expectation is that inventories would increase between 0% and 1% this year. We may see a slower pace of sales in the fall, because rising mortgage rates are pushing up housing costs so much. It may even cause a slightly bigger-than-usual recovery in for-sale inventory."
~ Jeff Tucker, senior economist at Zillow
“An inventory peak in late summer or early fall is the most likely scenario, given how the market returned to normal seasonal trends in 2021. The stock of existing homes on the market is finally starting to refill, as our March data shows total inventory now rising strongly.”
The interest rate factor
Mortgage rates soared to start 2022, dropping buyer affordability in the process. And it’s not like the market was full of bargains before that — as home prices grew at double-digit percentages annually for each of the past 12 months, including by 20% in February, according to CoreLogic.
The meteoric rise in mortgage rates works both for and against increasing inventory. Some otherwise would-be sellers could decide to stay put if they find the new interest rates to be unfavorable. Although, the higher costs to buy should lower demand and reduce the market competition.
“The higher interest rates will lead to a lock-in effect for homeowners, so they may not list. And it also might reduce demand from home buyers, especially for people really sensitive to prices."
But the market should slow down and that means homes will sit for-sale longer and more inventory will just accumulate because of that. Similar to previous years, we’ll see inventory probably start to grow around the third quarter.”
“While the fundamental issue of enough housing for the country is probably going to take a couple years, these rates could ease up the for-sale inventory a little bit sooner. We haven’t seen anything like this very rapid increase in rates in the last 20 years. They’ve totally disrupted people’s plans both to sell and buy."
~Len Kiefer, deputy chief economist at Freddie Mac
Will housing inventory ever rebound?
Low inventory keeps the housing market from equilibrium and has given sellers the upper hand in the past few years. However, a silver lining for buyers may sit on the horizon.
“A 74% share of industry experts believe the market will get back to those pre-pandemic inventory levels by 2024.”~Zillow's March Home Price Expectations Survey
For-sale housing supply averaged 1.6 million units per month in 2018 and 2019 but fell to around 1 million in 2021, according to Zillow. Based on a March survey conducted by the company, a 74% share of industry experts believe the market will get back to those pre-pandemic inventory levels by 2024.
“We’re going to start to take a step in that balanced direction this year. It’s going to take a couple of years just because the building shortfall is so big and because we still have so many young households, so there’s a lot of demand."
The market will eventually get to balance, it’s just not going to happen overnight. We need to have more building. At the end of 2021, the U.S. was 5.8 million single family homes short. It essentially means we’re five years behind when it comes to construction.”
“Given where starts and permits are, I would expect that housing construction is probably two plus years of production away from filling in the gap. I think it’s going to be a slog to really bring balance back to the housing market."
~ Len Kiefer, deputy chief economist at Freddy Mac
Why isn’t the market recovering faster?
The main culprit behind the inventory shortage is slowed construction across all housing types over time. Today’s supply chain issues and municipal zoning laws delay new properties from being completed and restrict opening up more properties.
Though construction numbers are also pointing upward. In its March forecast, the Mortgage Bankers Association estimated 1.71 million housing starts for 2022 and 1.79 million for 2023, compared to 2021’s 1.6 million.
“The Great Recession and the glut of housing supply that followed ushered in a decade of underbuilding that has now caught up to us. Although builders are firing on all cylinders to complete houses, they are dealing with supply chain issues that are making the construction process take longer than usual."
"Fixing these bottlenecks would help, but even then builders would have years’ worth of work ahead of them to meet the demand for new houses. Loosening up restrictive zoning laws could pay huge dividends here – allowing ADUs and in-law suites in single-family neighborhoods, and permitting “missing middle” options such as duplex and triplex units could meaningfully increase housing supply if broadly implemented.”
“Fundamentally, we need more homes. We can’t just rely on existing homeowners turning over because when they sell, they put their home on the market and contribute to supply but they buy again and contribute to demand."
"The real source to increase supply would come from new construction. We have to make it easier for people to build and get rid of some of that red tape around it as well. A lot of it’s controlled at the local level. It means a lot of local communities switching attitudes from being protectionary in housing to being pro-housing and pro-growth.”
~Daryl Fairweather, chief economist at Redfin
Advice for home buyers in 2022
Trying to buy a house right now is tough with the growth in prices and mortgage rates, as well as the lack of homes for sale.
Of course, there are many success stories out there and programs to take advantage of to help strengthen your buying position. There are reasons to be positive as the housing market evolves.
“Higher costs are going to make home purchasing more challenging. Buyers are going to have to get creative and maybe look further out into the suburbs, or maybe consider less expensive metros than they might have before."
"Most buyers tend to try to complete their home purchases in the summer, with August as the end of that bulk moving season. So the best time for buyers is normally in the fall because sellers who list then usually are a little more willing to negotiate. But I wouldn’t necessarily put home search plans on pause. My advice is when you find a home that fits your checklist and is in your budget, put an offer in.”
~ Danielle Hale, chief economist at Realtor.com
“The market is changing, so definitely be cautious about overbidding and thinking there’s more competition than there really is. It’s going to take time for the housing market to really feel different but pay attention to how many people are bidding on homes."
"If you’re in a bidding war against one person, your strategy would be a little bit different than if you’re in a bidding war against a dozen people. And I think the market is shifting from ‘very, very, very hot’ to ‘very hot’ and maybe fading into just ‘hot’ later this year. So stay on top of your local housing market.”
Home buyers, stay prepared to move fast
Bottom line: be as prepared as possible so when the right listing comes along, you’re ready.
Check your mortgage eligibility and reach out to a local lender so you know which loan type works best for you and how much home you can afford.