The US Housing Market: Looking Back and Moving Forward

The housing market in the US remains strong as 2021 comes to a close. Mortgage rates are low and the job market continues to show improvement. One silver lining to the ongoing pandemic is that many people were able to save money to put into the purchase of a new home. There is a lack of housing stock in much of the country, however, which means that even as more people have been able to buy homes in 2021, affordability concerns have been a stumbling block. What does this mean for next year? Can we expect to see a crash in the U.S. housing market? It’s certainly possible, but it is not necessarily inevitable.

There’s no doubt 2021 was a strong year for the housing market. High demand led to high asking prices and less time on the market. This meant 2021 was a seller’s market across the country. While housing prices increased steadily over the years, more recently we’ve seen double-digit increases due to the high demand and low supply. Many millennials are also starting to enter the market which puts further stress on a market in short supply. 

Let’s take a look at current real estate trends, including price and rent increases, housing sales and supply, mortgage rates and delinquencies, and other key industry takeaways and insights into the US housing market. This should provide a picture of where we are as the year comes to a close as well as a look at where we may be heading in 2022.

The Housing Market in 2021

Housing market by Nick Youngson CC BY-SA 3.0 Pix4free

There are signs that the white-hot market may be cooling off a bit in the third quarter of this year. Price growth slowed a bit and homes are beginning to spend more time on the market. The fierce bidding wars experienced by many would-be home buyers have also calmed down. This is to the benefit of homebuyers, especially those with the patience to sit it out for much of the year until things calmed down. Mortgage rates have remained low so anyone who did decide to wait it out won’t be punished for that patience either.

The Freddie Mac House Price Index tells us that home prices went up by just over eleven percent from 2020 but that growth is expected to fall to 7.9 percent in between the fourth quarter of this year and the fourth quarter of 2022. That’s a slow-down for sure but still a strong number historically. What that means is a return to normal, but certainly not a crash as home prices in the US have climbed 4.1 percent annually over the last three decades. Even if mortgage rates rise—as Fannie Mae expects the rate on a 30-year fixed-rate mortgage to rise from 3.1 percent to 3.4 percent—that won’t be a significant enough increase to lower housing prices. Not as long as the amount of available housing stays low too.

Looking Forward to 2022

Economists generally agree that the housing market will remain strong in 2022. The only point of contention is to what degree. Goldman Sachs predicts a rise in home prices of as much as 16 percent by the end of next year. On the other hand, CoreLogic predicts a rise of a little over two percent. For its part, Fannie Mae sees prices landing somewhere between those two extremes while Zillow is closer to Goldman Sachs with an expectation of a 13.6 percent increase in home prices.

These are just predictions, of course, and if the pandemic taught us anything it’s to expect the unexpected. What seems likely, however, is that the US housing market is settling into a pattern of single-digit price growth and that’s encouraging. 

As we make our way through the fourth quarter of 2021, we are seeing listing prices fall in metro areas across the country and new sellers are testing the market. Low supply and high demands mean real estate will appreciate at faster than normal rates through the end of this year. A good sign for home-buyers is a decrease in the percentage of home listings that got multiple offers. That number was as high as 74 percent in the spring of 2021 but had fallen to 59 percent by September. 

3 Known Unknowns Affecting the Market

Three key factors will affect growth going forward. That includes how high mortgage rates will actually rise. The things to watch for are how much supply chain disruptions will affect home builders and how the rising cost of consumer goods will sway homebuyers. 

1. Inflation

Inflation text on calculator screen on t” (CC BY 2.0) by

The Federal Reserve’s prediction about where inflation would be at the end of 2021 proved to be wrong, unfortunately. Inflation rates have in fact reached levels not seen since 1990 and not far off from the inflation rates of the 1970s. This makes it more likely that the Federal Reserve will raise the federal funds rate which has been kept at zero throughout the pandemic. If the rate is raised then the average 30-year fixed mortgage rate will rise as well. That will have an impact on the current housing market to be sure. We’ll just have to wait and see what happens in the coming year. 

2. Supply Chain Disruption

Global Supply Chain Resilience: Visual” (CC BY-NC-SA 2.0) by World Economic Forum

Another problem affecting the current housing market is supply chain disruptions. For example, the price of lumber is up 300 percent over its price before COVID-19. There was a price correction as many opted to hold off on building but that did not send housing prices back to earth. In fact, they rose five percent in the four months that followed. The issue is that even as lumber prices fell, the cost of nearly every other building material, from concrete to paints, went up. Construction jobs have also been hard to fill during the Great Resignation.

3. Rising Consumer Prices

Another factor affecting the housing market is the rising cost of… everything. Food, gas, household products, you name it, we’re paying more for it. This is driven by both inflation and supply chain problems and will also affect home sales going forward. In October of 2021, the consumer price index rose by half a percent and that includes rent. Home prices rose nearly 20 percent compared to August of last year. Unfortunately, wages have not risen at the same pace as inflation and that could mean another hit on the market.

Advice to Homebuyers

Would-be homebuyers face the decision of whether to buy now or wait and see how the upcoming year pans out. It comes down to your particular situation. If you can afford to move now, you’ll take advantage of historically low interest rates. Wait too long and you could miss out. However, if you can afford to be patient, more homes added to the current housing stock should push prices down to your benefit. It’s all about your budget and your time frame. Whatever you decide, happy house hunting!

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