The 2022 Housing Market: 3 Things to Watch

  • Date:

    February 23, 2022

The 2022 Housing Market: 3 Things to Watch

With the benefit of 2021 year-end data to help inform forward-looking projections, we’re starting to get a better sense of what the rest of 2022 has in store for the homebuilding and remodeling industries.

The ongoing impact of COVID-19, a booming housing market and the potential for interest rate hikes by the Federal Reserve are all influencing consumer decision-making when it comes to their homes. Meanwhile, supply chain issues and workforce shortages continue to hamper construction schedules for homebuilders.

Fortunately, even with so much uncertainty, the 2022 outlook looks promising if you prepare now for what’s ahead. Let’s take a look at what the data are telling us.

A Supply and Demand Balancing Act

Fueled by low mortgage rates and an incredibly competitive marketplace, Americans bought 6.12 million homes last year — setting a 15-year high for existing home sales.

As a result, the country’s unsold housing inventory currently sits at an all-time low.

This limited supply of resale homes is good news for new home construction in 2022, reports the National Association of Home Builders. However, the opportunity to capitalize on the continued demand for housing will also come with headwinds for builders.

With supply chain disruptions causing ongoing building material shortages, some homebuilders delayed housing starts in 2021. The number of housing units that builders haven’t started work on despite having the authorization to begin the project is up 44% from a year ago (MarketWatch).

And, for those projects already under construction, product delays have forced some homebuyers to move into their new house while waiting for some things to arrive and be installed (The Wall Street Journal).

Looking at 2022, 90% of homebuilders anticipate that both pricing and the availability of building materials will continue to be significant issues. Furthermore, even as housing materials become more readily available, attracting skilled laborers is also expected to be an ongoing challenge for construction companies, as the labor market improves and the unemployment rate declines.

Ultimately, the good news for the home construction sector is that demand for new housing should continue to outpace the available supply. And, with a backlog of single- and multifamily housing projects, builders are well positioned to help answer that demand with some much-needed inventory.

Home Remodeling Remains a Popular Alternative

The January Fannie Mae Home Purchase Sentiment Index found that 69% of those surveyed believe it is currently a good time to sell a house, but only 25% of respondents think it is a good time to buy one (a record low for the survey).

With soaring real estate costs and housing inventory at its lowest level since January 1999, many would-be homebuyers are instead investing in remodeling and renovation projects. This continues trends we saw originate during the first year of COVID-19, as people looked to upgrade their living spaces to include home offices, exercise rooms and other accommodations to help improve their well-being.

Plus, home improvement professionals — both build-only remodelers and design-build firms — expect the renovation boom to continue throughout this year. In its Q1 2022 report, the Houzz Renovation Barometer found that the confidence level of construction professionals is at its highest level since 2018, and anticipated project inquiries are among the highest for the construction sector in the barometer’s history.

Tapping into remodeling trends can help designers, builders and home remodelers market products and services that consumers are looking for ahead of their competition. The experts at NAHB predicted the top five remodeling projects that will lead the way:

Top Remodeling Projects for 2022

  • Functional mudrooms to help keep other areas of the home less cluttered

  • Backyard living spaces such as outdoor kitchens and hardscape fire pits

  • Larger windows (and more glass in general) to bring natural light inside

  • Adaptable home offices that accommodate working from home and remote learning

  • Accessory dwelling units as a way to add housing options on an existing property (e.g., in-law suites and guest houses)

The Impact of Increasing Interest Rates

A big caveat to everything we’ve discussed about the state of the housing market in 2022 is the impact of an expected interest rate hike by the Federal Reserve in March — with several more increases anticipated over the course of the year. This would mark the first time the Fed has raised interest rates since the start of the pandemic and will likely end what has been a historically low mortgage rate environment.

For homebuyers and remodelers, even an incremental rate increase is significant when calculated over the lifetime of a multiyear mortgage or line of credit.

On the other side of the coin, increased interest rates should help slow inflation after consumer prices jumped by 7% year-over-year in December, marking the largest year-over-year gain since June 1982.

With so many unprecedented events impacting the housing market, it can be a challenge to stay updated and respond strategically to changes in consumer behavior and the state of builder confidence. Wray Ward has the market research and insights to help you keep your marketing strategy ahead of the curve. Let’s talk.

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