Planning on buying your first home in 2022? Better start early and prepare for some competition.
A recent housing market forecast from Realtor.com suggested that buying a first home in 2022 could be a challenge. There are several reasons for this. Mostly, it comes down to stiff competition and limited inventory.
In other words, the real estate market of 2022 could look a lot like 2021.
Forecast: Hard to Buy a First Home in 2022
On December 1, the research team from Realtor.com published a housing market forecast for 2022. Among other things, they suggested that it might be hard to buy a first home next year. At least for some buyers.
According to that report:
“Americans will have a better chance to find a home in 2022, but will face a competitive seller’s market as first-time buyer demand outmatches the inventory recovery…”
In other words, the expected increase in housing market inventory won’t be enough to shift the market toward favoring buyers. The industry group suggested that we could see a slight rise in inventory during 2022. (Emphasis on the word slight.) But overall, the demand for homes will continue to exceed the available supply.
Here are three reasons why it could be hard for some folks to buy a first home in 2022:
1. The millennials are coming
According to Realtor.com, a large number of millennials in the U.S. are now reaching the prime home-buying age. And with the rise of remote working, many of them are now in a position to buy a home wherever they choose.
This and other factors could increase the demand for homes in 2022, making the market more competitive for first-time buyers.
Recent surveys have shown that millennials (i.e., those born between 1981 and 1996) account for 53% of prospective buyers who plan to buy within the next year or so.
“And with more than 45 million millennials within the prime first-time buying ages of 26-35 heading into 2022, we expect the market to remain competitive,” the Realtor.com forecast stated.
As we’ve reported in the past, there have been signs of inventory growth within the housing market. Some analysts predict we could see more homes coming onto the market in 2022. And while that’s good news for anyone planning to buy a first home in 2022, the ongoing inventory crunch will remain a factor.
The bottom line: Despite any gradual inventory growth we might see over the coming months, first-time buyer demand will likely continue to exceed supply. And the rising tide of millennial home buyers will have a lot to do with that.
2. Starter homes in short supply
Many people who plan to buy a first home in 2022 will be shopping at the lower end of the price range. For budgetary reasons, first-time buyers tend to lean toward smaller and lower-priced “starter homes.”
The problem is, that’s where inventory is most constrained.
For well over a year now, the U.S. has experienced a severe shortage of starter homes. According to NPR senior business editor Uri Berliner: “In 2020, the number of starter homes built was less than a fifth of the yearly average of the early ’80s.”
There are many reasons for this ongoing shortage. Zoning restrictions, labor costs / shortages, and the high cost of materials top the list. First-time buyers, in particular, could experience this shortage firsthand.
This is another reason why it might be tough to buy a first home in 2022.
3. A projected increase in home sales
Given the blistering pace of home sales during 2021, it’s hard to imagine they could increase next year. But that’s exactly what some sources are predicting.
The Realtor.com housing market forecast predicted that home sales could rise by more than 6% in 2022, hitting “their highest level in 16 years.”
Granted, inventory levels are expected to rise as well — but probably not by much. So the lopsided supply-and-demand situation that has frustrated first-time home buyers this year should still be a factor in 2022.
But Don’t Abandon All Hope
So, 2022 might bring challenges for those planning on buying a first house. But by definition, something that’s “challenging” is still possible.
The process might take longer. You might have to work a little harder and bring some extra patience into the game. But it’s entirely possible for first-time buyers to succeed in this tight market.
With that in mind, we offer the following tips for buying a first home in 2022:
- Cast a wide net. If you have the luxury of shopping around in different cities and housing markets, do so. Some markets are a bit more buyer-friendly, when it comes to inventory, competition and prices.
- Accept reality. In most U.S. cities, real estate market conditions strongly favor sellers over buyers. This will carry over into 2022, as well. Accepting this reality is the first step to navigating the market.
- Know the market. If you’re planning to buy a first home in 2022, you should already be researching your target real estate market(s). Find out what the inventory situation is like. Find out what homes are selling for, and how fast they’re going under contract. You can easily find this kind of information online.
- Work with an agent. Having a market-savvy real estate agent on your side could greatly increase your chance for success. An experienced agent can help you avoid some of the first-time home buying mistakes that are common in a competitive housing market. And when you consider that the seller typically pays the agent commissions, it’s even more of a no-brainer.
Buying a first home in 2022 might be a tall order, especially for buyers in highly competitive markets. But it can be done. Just ask the tens of thousands of first-time buyers who succeeded this year.
Disclaimer: This report contains predictions and forecasts from third parties not associated with the publisher. The Home Buying Institute makes no claims about future housing or economic conditions.