The U.S. real estate market appears to be cooling down a bit, but we probably shouldn’t expect to see a buyer’s market in 2022.
With more than a year of red-hot housing activity behind us, many people are wondering if the market will ever shift back to favoring buyers. Currently, tight inventory conditions and steady demand have created a nationwide seller’s market.
And while the real estate scene appears to be slowing in the second half of 2021, a classic buyer’s market probably won’t happen anytime soon.
Why a 2022 Buyer’s Market Is Unlikely
In simple terms, a real estate “buyer’s market” occurs when there are more properties for sale than there are buyers seeking them. An excess of supply relative to demand makes it easier to buy a house and harder to sell one.
But that’s not where we are in 2021. Currently, most cities across the U.S. are experiencing a serious shortage of housing market inventory. There just aren’t enough homes for sale to satisfy the demand from buyers. In other words, current conditions favor sellers.
But what about next year? Could we see a buyer’s market develop in 2022? Based on current conditions within the housing market, that seems like an unlikely scenario.
Recent trends and forecasts suggest that the U.S. real estate market is slowing down a bit. Home sales, for example, have dropped measurably in recent months. But this probably won’t be enough to create a buyer’s market in 2022.
Here are three reasons why:
1. The inventory shortage still favors sellers.
If you’ve watched the local or national news anytime within the past month, you’ve probably seen more than one story about the nationwide housing market shortage.
This situation has been going on for a couple of years and was worsened by the coronavirus pandemic. Over the past 15 months or so, a surge in home-buying activity caused inventory levels to plummet. This in turn created seller’s market conditions in most cities across America.
Numerous reports have shown an increase in the number of new real estate listings coming onto the market.
For instance, a recent report from the national real estate brokerage Redfin showed that new listings nationwide rose by 4% in July compared to a year earlier. Total inventory, however, dropped by -32% during that same 12-month period.
So while the inventory situation has improved in recent months, it probably won’t be enough to shift us into a buyer’s market in 2022.
According to a July 2021 report from Freddie Mac:
“the US housing market will continue to struggle with a shortage of available housing for many months to come.”
2. The construction industry has been ‘underbuilding’ for years.
Generally speaking, there are two types of homes available for buyers. New and existing. Newly built homes are in very short supply these days, due to a lag in construction over the past 10 years. In 2020 and 2021, new home construction slowed even further due to labor shortages and high lumber prices.
If the construction industry shifted into high gear, it could steadily boost inventory and possibly create a buyer’s market by 2022. But that’s an unlikely scenario.
According to a recent report created by Rosen Consulting Group for the National Association of Realtors:
“Following decades of underbuilding and underinvestment, the state of America’s housing stock, which is among the most critical pieces of our national infrastructure, is dire, with a chronic shortage of affordable and available homes to house the nation.s population.”
3. A lot of homeowners are afraid to sell their homes.
Okay, so there’s not a lot of new construction coming onto the market. But what about existing homes?
While we have seen an increase in the number of existing homes coming on the market, it’s probably not enough to shift us from a seller’s to a buyer’s market in 2022.
Surveys conducted over the past few months have shown that a lot of homeowners are reluctant to list their properties for sale. They read and watch news stories about home buyers struggling to find properties, and worry that they will suffer the same fate. Additionally, rising home prices could make it harder for homeowners to locate another property.
Thad Wong of the Chicago-based real estate brokerage @properties recently summed it up nicely for The Wall Street Journal. As Wong explained it:
“It’s hard to upgrade. Even with low rates and the appreciation of their home, [prospective sellers] can’t find something better than what they live in right now.”
The bottom line: A recent cooling trend within the U.S. real estate scene might bring a bit more balance. But it probably won’t be enough to create a buyer’s market in 2022.