Expert Forecast: Predictions for the Rest of the 2022 Real Estate Market

Seldom have rising interest rates been seen as beneficial in real estate circles. But in the current seller's market, higher mortgage financing rates are viewed as a potential antidote to runaway price appreciation in many markets across the country. While few experts believe that rate increases will substantially reduce the current demand or affect sales numbers in the second half of the year, we have seen a dip in demand locally that has allowed our inventory to build back up to pre-Covid times. 

Higher prices and an increasingly short supply of homes have caused some buyers to be effectively priced out of the market. The concurrent increase in rental prices only serves to accentuate the problem. Viewed as a wise move by the Fed, real estate experts hope that higher interest rates will help balance demand and regulate prices in the coming months. Real estate professionals and potential buyers and sellers alike will certainly be watching with bated breath and lenders have stepped in with creative ways to address stepping into higher rates in the interim. 

While rates have risen more quickly than predicted, which is a sign that affordability will continue to be diminished because supply cannot keep up with current demand, real estate predictions do not anticipate a meltdown, nor do forecasters anticipate that a crash is on the horizon. Knowing that real estate values work over time every time, investing in real estate may look different but it's not gone.  

Statistics Tell the Story

New construction has not yet completely recovered from the Great Recession due to a diminished labor pool and the inflated cost of materials - while they've been trying to build to meet demand, they've just had too many challenges along the way. The past two years of the pandemic has influenced the housing market from a supply perspective and now, all indications are that the availability of housing -- both new builds and new listings -- will increase during the remainder of 2022. 

Let's look at past statistics: 

According to the February 2022 Monthly Housing Market Trends Report by Realtor.com, the median listing price for active listings was $392,000, representing a 12.9% increase compared to 2021 and up 26.6% from February 2020. By most measures, 2021 was a banner year for home sales. 

The number of homes on the market declined by almost 180,000 in 2021, and total inventory decreased by nearly 27% compared to 2020. 

Today, leading real estate forecasters, notably Zillow, have issued new estimates for 2022, noting that the 16.4% projected growth rate may have been high. Zillow's latest prediction is for a 14.9% growth rate, with 6.09 million sales, down only one-half percentage point from 2021.

Key factors -- Low inventory, quick sales, and rising prices -- are all cited by leading analysts, and the expectation is that all will continue at least until 2023. Selling conditions have certainly changed and will continue to as inventory grows. 

In Arizona, we've seen higher appreciation rates than many parts of the country - topping the Case Schiller's Index for more than 30 months in a row. The second half of 2022 will impact Arizona cities differently so understanding what the market trends look like in your neighborhood will ensure you don't leave money on the table as a buyer or seller.  

Has the American Dream Faded?

Although the American Dream of putting down roots in a home of your own may seem a little more difficult than it once was, it's also a fact that the real estate market is reasonably healthy today and will continue to be strong. No one is predicting a crash. Because the meltdown of a decade ago is still top of mind for some, that's the good news of the 2022 real estate forecast. 

However, one bit of bad news, according to knowledgeable analysts, is that an increase in foreclosures is almost certain as the moratorium is lifted. Post-pandemic economic reality and a rising cost of living will mean increasingly tighter budgets for all but the nation's upper-income homeowners. Each state will be impacted differently and with the average home owner sitting on at least $100,000 in equity in their Arizona homes - it's unlikely that it will be enough to make the nightly news let alone an impact on our market. 

The housing market should remain strong and stable for at least the next five years, according to Kathy Fettke, co-founder of RealWealth. She notes that changing demographics will affect the various housing market segments in different ways. A population shift from cities to suburbs and smaller towns, she says, opens pockets of opportunity in densely populated areas for investors. Still, suburbs and smaller towns are likely to become less affordable for buyers, especially if the seller's market continues into 2023.

Inflation and higher cost of living mean that more people will continue to rent, even though rental prices are high and will become higher, says Fettke. She also predicts that more people must choose to work remotely to lower their expenses. This expert also sees an inevitable tightening of mortgage loan requirements and perhaps more interest in adjustable-rate loans. Finally, she rounds out her real estate predictions by noting that she anticipates no real change to the current federal tax structure until after the November elections.