We are going into 2022 with close to a shortage of 6 million homes to match current demand levels.

Even as would be first time home buyers are priced out of the market, investors are scooping up single-family homes at a record pace and the housing market should continue to thrive in this new normal that has been created by the pandemic.

Active, for-sale inventory of single-family homes typically hits bottom in the second week of January, but it didn’t reach that point until April 30 in 2021, according to Mike Simonsen, co-founder and CEO of Altos Research.

“Any new inventory that was getting listed in the first quarter was getting gobbled up so quickly that inventory actually kept falling,” he said in his “Real Estate Market Outlook for 2022” webinar. “We’re about to break that record low inventory.”
Regarding demand, Bank of America notes that millennials are leading the homebuying charge and they are nowhere near done reaching the prime age for homebuying.

“As rent prices have sped past projected estimates based on pre-pandemic trends, homeownership and steady monthly mortgage payments become more attractive,” the lender told Inman in a statement.

“This will continue to be the case for millennial buyers in the coming years, as the tailwind from this generation of homebuyers is still in the early stages. The number of 35-44 year olds (historically a leading indicator of housing starts) is set to increase by 5 million over the next eight years.”

While many potential sellers are sitting on the sidelines — in part because buying in this market is so daunting — many are taking the plunge; realtor.com expects inventory to grow 0.3 percent on average next year.
“Demand for new home construction remains robust as the supply of existing homes for sale remains historically tight and mortgage rates continue to be highly supportive for homebuyers despite drifting upwards recently,” Doug Duncan, Fannie Mae’s chief economist said in a statement.

“However, supply bottlenecks and labor scarcity continue to hold back a faster pace of construction. Despite the rise in starts, single-family home completions were essentially unchanged over the month, while the number of units under construction rose by 2.9 percent to the highest level since early 2007.

Eventually these homes will add to the overall housing supply, but this report showed little evidence of improvement regarding homebuilders’ ongoing struggle to keep up with demand.

The expected increase in new construction will be “a drop in the bucket,” according to Zillow economists.

“Homebuilder confidence is sky-high, and builders are doing all they can to get houses up, but supply chain snags and labor shortages are limiting progress. The gap shrunk in 2021 and will likely shrink again in 2022, but the housing shortage will be a defining feature of the market once again next year.”
That lack of supply will inevitably lead to higher home prices, though they won’t rise as much as they did this year. Economists differ on exactly how much of a bump they’ll get, however.

  • Fannie Mae predicts that the median price of an existing home will rise 11.5 percent in 2022.
  • Zillow predicts that the median price of an existing home will rise 11 percent in 2022.
  • Redfin predicts that the median price of an existing home will rise 3 percent in 2022.
  • Realtor.com predicts that the median price of an existing home will rise 2.9 percent in 2022.
The pandemic ignited a frenzy in the housing market.

A decade’s long inventory shortage which meant the market was already 5.2 million single-family homes short was met with an unprecedented surge in demand just as many were expecting the opposite response to the pandemic uncertainty.

While builders worked to adjust, the market balanced high demand and short supply by pushing prices higher.

August 2020 kicked off a year-long streak of double-digit home price growth.