Prospective homebuyers shouldn’t expect substantial relief on the horizon when it comes to house prices.
Following a record-breaking year for the residential real estate market in 2021, industry observers say 2022 is poised to remain a seller’s market.
As Timothy Howes, an associate professor and department chair of graduate business programs at Johnson & Wales University, sees it, the market will likely go “from ridiculous to hot.”
“Prices still seem to be trending upward, but they’re trending upwards at a slower rate again,” Howes said.
In 2021, exceptional demand and skyrocketing prices defined residential real estate, with new listings flying off the market and financially well-off buyers making bids and cash offers to secure homes in the booming market.
Not many of the factors behind this surge are expected to change significantly in 2022, said Sally Lapides, CEO and president of Providence-based Residential Properties Ltd.
“I think pretty much all the elements are the same,” Lapides said. “People are back in business, even though they’re not working the same way that they used to. Interest rates are still down; demand is still up.”
In the most recent data from the S&P CoreLogic Case-Shiller Index, home prices in October saw a significant year-over-year increase, at 19.1%. Home prices are moving “substantially higher, but at a decelerating rate,” Craig J. Lazzara, managing director of S&P Dow Jones Indices, said in the company’s report.
‘It still won’t be a normal market next year [2022].’
MARY E. NOONS, The Washington Trust Co. executive vice president of retail lending
While October and September gains both decreased from their previous months, the 19.1% increase in October is the fourth-highest reading in S&P DJI’s 34 years of data, according to the report.
Various factors fueled the pandemic real estate surge. With an increase in remote and hybrid work options and lingering caution around social gatherings – particularly with the emergence of the highly contagious omicron variant of COVID-19 – more people want a larger living space. Others are looking for a second home, and millennials are at the peak age for becoming first-time homeowners.
“People really value homeownership in a way that they didn’t even realize before the pandemic,” Lapides said. “Everyone wants the safety and security of a home to both live in, work in.”
Rising rental costs may also drive more people in general to buy a home, said Agueda Del Borgo, president of the Rhode Island Association of Realtors.
“Buying becomes kind of a stable option with the low interest rates,” she said, “and I think that once rents reach a certain point and someone qualifies to purchase, that becomes a buyable option to enter.”
Additionally, zoning regulations in cities and towns limit opportunities to build more houses, said David Salvatore, government affairs director for the Realtors association.
“There is a fear of more housing in the state,” Salvatore said, highlighting this issue as critical in the housing shortage.
“The fact that Rhode Islanders are being priced out of the housing market and living outside has to be a wake-up call that we have a housing problem in this state,” Salvatore said.
While housing prices surged, low mortgage rates allowed borrowers to cover the additional cost. As of Dec. 28, the average rate for a 30-year fixed mortgage was 3.24%, according to consumer financial services company Bankrate.
Mortgage rates are expected to increase in 2022, but the extent of the impact on the housing market remains to be seen.
By late 2022, rates may gradually rise to about 4%, said Mary E. Noons, executive vice president of retail lending for The Washington Trust Co. “It’s an increase for certain,” she said. “But it’s not enough to majorly affect demand in the purchase market.”
Demand will also remain high, Noons said.
“I think there’s still going to be a very tight inventory in our area,” she said. “I think there will be multiple bids on properties for sale. I don’t know if it will reach the levels that it did this year [2021], but I don’t think it’s going to drop off significantly. It still won’t be a normal market next year [2022].”
As of summer 2021, property inventory was at a two-month supply, meaning that if new property listings stopped completely, current listings would last two months. Typically, there is a six-month supply.
Howes cautioned that despite projections, observers aren’t certain what 2022 will hold as the market and other influential forces continue to change.
In November, Howes said he would have anticipated a trend back toward city living after people fled to the suburbs in the early days of the pandemic. But with the omicron variant now surging, he’s not so sure.
Likewise, Howes said he isn’t sure exactly when the market will substantially slow – at the moment, only a serious recession might have that effect. But “at some point the party will end” for sellers, he added.
“I don’t think anyone has the exact answer because no one has seen anything like this before,” Howes said. “But I think affordability is an issue because if people can’t afford it, they can’t buy it, so it has to reverse itself at some point.”
Jacquelyn Voghel is a PBN staff writer. Contact her at Voghel@PBN.com.
