The US housing market had an epic 2021, with an estimated 6 million homes purchased last year. However, benefitting from these sales depended on whether one was the buyer or the seller.

According to the Federal Housing Finance Agency, home prices increased by nearly 20%. And, in some hot markets, homeowners saw double those profits. Homes were flying off the market soon after they were listed. Even homes with significant damage (such as flooding or fire) had offers well over their asking price. As you can imagine, sellers saw some awesome gains.

But this wasn’t the case for homebuyers. 

While mortgage rates were at record lows for most of the year, finding a home was still challenging. Inventory reached an all-time low, and competition was fierce, forcing prospective buyers out of the market without a home to call their own. 

No doubt, last year’s housing market was one to remember. Here’s what to expect in 2022.

2022 Housing Market Outlook

Record low mortgage rates are over.

While last year began with the lowest rates on record, they didn’t last long. By spring, they reached the year’s peak of 3.18%. Rates have fluctuated since, but we can expect interest rates to increase in 2022.

Also, the Federal Reserve has hinted that the pandemic monetary policy will end to help curb inflation –ultimately pushing interest rates upward.

While the revised policy won’t financially benefit those looking to purchase a home within the next few months, it’s still a good idea to encourage them to do so. Experts predict rates will hover around the low 3% range through the first quarter of 2022 but will likely increase by up to half a percentage point as we near the end of the first quarter and enter the second. 

Chief economist at the National Association of Realtors, Lawrence Yun, expects the 30-year fixed to inch up to 3.7% by the end of 2022. While notably higher than pandemic rates, this higher one will still be lower than the 2020 rate, around 4%.

Lower-priced and median-priced home buyers will feel this the most as increased rates coupled with inflation will strain their already tight budget. 

Inventory will remain a challenge.

Inventory will remain tight even with properties becoming available in the spring 2022 homebuying season. Realtor.com predicts property availability to increase only by about 0.3% in 2022 –encouraging some extreme buying tactics in some areas of the country. Offers that include buying the seller’s next home or bidding $100k over the asking price have been seen in particularly aggressive markets. 

This brings us to our next prediction.

Home prices continue rising.

Home prices went up in nearly every part of the country last year, up about 13% –or 19% for new constructions. While we won’t see these double-digit gains this year, prices will continue the rising trend in 2022, though at a slightly more moderate pace.

As for the National Association of Realtors, they estimate that this increase will be by 5.7%. They also expect the housing market and broader economy to normalize somewhat in 2022 as the Feds try to tame inflation.

First-time buyers will continue to struggle.

Few available homes, skyrocketing prices, and competing with all-cash offers pushed many first-time buyers out of the market last year. Despite the “excess savings” that many Americans accumulated in 2020-21, it seems like it’s still not enough. “People don’t feel like they are participating in what they consider to be American life through homeownership,” said Yun. “All their work to build up savings can feel less meaningful in the face of rising prices.”

Furthermore, mortgage types favored by new homebuyers, like FHA and VA loans, were often declined in favor of all-cash deals or conventional loans.

Despite the seemingly grey cast over the market, many homebuyers remain optimistic, aiming to make their homebuying goals happen come spring 2022.