Benjamin Thompson Kirk supports clients all over the world, providing the benefit of his specialist knowledge of the US, Canadian and UK property markets. This article will look at the residential property market in the United States, exploring how, despite the economic uncertainties created by COVID-19, the US real estate sector has been surprisingly resilient.
Increased Demand for Family-Friendly Homes
At the current time, the sharpest increase in home prices is occurring in America’s family-friendly suburbs. This is according to Zillow Group Inc., whose analysis focused on 421 counties, representing more than 70% of the total US population.
Zillow’s report suggested that counties with the largest under-18 demographic saw home price increases around two-thirds of the time. The correlation was almost perfect in cities like Washington D.C., where homes in family-friendly neighborhoods rose by approximately 15% in the 12 months through to October 2021, contrasting sharply with flat and even falling prices in the areas with the fewest children. Other metropolitan areas that saw significant gains included Seattle ; Austin, Texas; and Portland, Oregon, with almost 10,000 zip codes revealing this positive trend.
Industry experts predict that, as we move through 2022, overall housing markets are likely to cool in the wake of the pandemic boom. Nevertheless, according to Zillow, demand for homes in child-friendly, sought-after suburbs will not just continue, but grow stronger than ever.
Predictions for the US Home Buying Market for 2022
A report published by Realtor.com lends weight to Zillow’s findings, suggesting that online searches for homes are concentrated in the suburbs, where demand drastically outstrips supply at the current time. With record numbers of millennials reaching the average first-time home-buying age in the next few years, Zillow’s economist Nicole Bachaud suggests that they are seeking out homes that fit the needs of growing families.
In 2021, American homebuyers felt the squeeze, with home prices soaring to record highs, peaking at a 20% year-over-year increase; this is a rate that industry experts warn is simply unsustainable in the long-term. In a review published by Fortune in the last quarter of 2021, all seven forecast models predicted a significant decrease in home price growth as we move through 2022.
In the coming months, experts predict that baby boomers could be the key to alleviating the lack of inventory. With record numbers of Americans turning 65 this year, many will become eligible for Medicare, enabling them to retire. Analysts predict that sales by this cohort could provide a much-needed boost to the number of single-family homes on the market.
In spite of this, Zillow has re-evaluated its December 2021 report, deeming its prediction of an 11% average increase in US home values too conservative. Revising these figure, economists at Zillow now suggest that house price increases could peak at 16.4% in 2022, marking another troubling year for home buyers.
Much of the problem boils down to housing inventory, which plunged to a 40-year low during the pandemic as new buyers flooded to the market. Although this trend was tipped to reverse later in 2021 as mortgage rates rose and forbearance protection programs lapsed, in reality, the inventory situation has actually gotten worse. In fact, Zillow reported just over 923,000 US homes listed for sale on its site in January 2022, representing a 19.5% drop from January 2021 and a staggering 40.5% fall from pre-pandemic levels in January 2020.
Analysts warn that the housing market is even tighter now than last year, with a difficult few months predicted for home buyers. Nevertheless, there is one big unknown. As the Federal Reserve enacts policy shifts as part of efforts to contain inflation, this will indirectly trigger increases in mortgage rates. In fact, the rate of an average 30-year fixed mortgage rose to 3.56% in January 2022, representing the largest monthly jump in mortgage rates in more than nine years. However, in the short-term this could actually push even more buyers onto the market, clamoring to lockdown a mortgage rate before they increase.
The first quarter of 2022 has revealed a continued upward trend in house prices, triggering a divide in opinion. Indeed, many of the experts quoted in Fortune’s review are revising their previous forecasts for 2022, replacing them with much more bullish outlooks – at least in the short-term.
Indeed, many insiders predict that this spring could make history as one of the most competitive the US home buying sector has ever seen.