For many months now, the U.S. housing market has suffered from a major imbalance between supply and demand. In local real estate markets all across the country, the number of home buyers has greatly exceeded the number of houses for sale.
This “lopsided” situation has led to fierce competition among buyers, while boosting home prices to record highs. You probably know all of this already. It’s been the number-one housing market news story of the past year.
But here’s something new. A recent report suggested that we could see a “more balanced” U.S. real estate market later in 2022. With move inventory expected to hit the market, home buyers nationwide might enjoy more options — and less competition — over the coming months.
A More Balanced Real Estate Market in 2022?
In April, real estate researchers from Zillow published a report suggesting the lopsided housing market could become more balanced over the coming months. Specifically, they pointed out that higher mortgage rates and a rise in for-sale inventory could help normalize the real estate scene.
That would be a welcomed change, especially from a home buyer’s perspective.For the past 18 months or so, the U.S. housing market has been anything but normal. “Frenzied” would be a better word for it.
But lately, it seems that change is in the air. Rising mortgage rates and home prices, combined with a steady decline of housing affordability, has softened demand within the housing market. We’ve also seen signs of inventory growth, as more homes have come onto the market.
These and other factors could lead to a more balanced U.S. real estate market through the second half of 2022, and possibly into 2023.
According to the April 2022 Zillow report:
“Inventory … finally began to lift off in March after falling consistently since August 2021. Total listings jumped 11.6% from February, the biggest monthly gain in data through 2018, providing enough of a jump beyond seasonal norms that the market began to make a little progress back up from seasonally adjusted record lows.”
These are positive signs for home buyers across the U.S. But make no mistake — the housing market still favors sellers over buyers in most parts of the country. Even if inventory continues to grow through the rest of 2022, it probably wouldn’t be enough to shift negotiating leverage toward buyers.
Home-Price Growth a Factor Here as Well
The Zillow report also highlighted the ongoing rise of home prices nationwide. While this trend has priced some buyers out of the real estate market entirely, it hasn’t had much impact on overall housing demand.
The median home value in the U.S. rose to around $337,000 last month, marking a 20% increase from a year earlier. That was the 12th month in a row where we’ve seen a new record for annual home-price appreciation.
House values continue to rise much faster than incomes and wages, a trend that has steadily reduced housing affordability nationwide.
Despite these fast-rising housing costs, buyers continue to snatch up properties soon after they hit the market. But eventually we could reach a kind of tipping point where higher mortgage rates — along with general inflation and rising house prices — start to reduce buyer demand. That’s when the housing market will begin to slow down. And it could come later this year.
There’s also a good chance that mortgage rates could rise further in 2022, following a sharp spike over the past few weeks. The Federal Reserve just announced it would be increasing the short-term federal funds rate to combat inflation. That and other factors could put upward pressure on consumer interest rates going forward.
Big Inventory Declines in Miami, Nashville and Raleigh
While some real estate market are becoming more balanced in 2022, others continue to challenge buyers. In these red-hot housing markets, inventory has plummeted over the past year, forcing buyers to compete fiercely with one another.
The aforementioned Zillow report revealed that housing markets like Miami, Nashville and Raleigh experienced major inventory decline over the past year or so. As a result, real estate conditions will remain highly competitive in these and other metro areas.
To quote the report again: “Of the 50 largest U.S. metros, those with the largest inventory deficits relative to March 2019 are Raleigh (-70.7%), Miami (-67.5%) and Nashville (-66%).”
No Market ‘Crash’ on the Horizon
With the recent rise in mortgage rates, and the ongoing climb of home prices, some have expressed concerns that the U.S. real estate market could crash in 2022 or 2023.
According to the research team from Zillow, however, that doesn’t appear to be on the horizon anytime soon. Rather, they see the market self-correcting and shifting back toward normalcy.
“A looming swing back toward a more balanced housing market should not be confused with a market crash, which remains very unlikely,” the authors stated.