If buying a house is on your radar for next year, it's time to start preparing.
While it's unlikely the market will be as crazy as it was in 2021, home shoppers will still face some headwinds along the way. Understanding what you're up against can lead to a better shopping and buying outcome.
Here are some factors to keep in mind.
- Demand for housing isn't going anywhere. There's a huge shortage of housing, along with plenty of would-be buyers waiting to jump in. Many of them also have the flexibility to move and work from anywhere, taking advantage of the wide acceptance of remote work brought on by the pandemic.
- Homebuyers have much to look forward to in 2022. After years of declining, the inventory of homes for sale is finally expected to rebound from all-time lows. Still, the housing market will remain competitive for buyers, particularly those looking for homes in entry-level price tiers. With more than 45 million millennials in the prime first-time home buying ages of 26 to 35 in 2022, entry level buyers are likely to have a lot of company. Plenty of buyers mean rising home prices and when combined with rising mortgage rates buyers will face higher monthly payments.
- Millennials are in their prime homebuying years and have made up the largest share of buyers during the past few years. Boomers, on the other hand, are at the downsizing stage. In short: Be ready for a bidding war and come prepared, particularly if you're eyeing a starter home. Waiving contingencies, increasing your offer price, or adding in an escalation clause, which automatically increases your offer (to a certain point) if you're outbid, can all help you be more competitive. As more homeowners list their homes for sale, these homes remain on the market for longer periods of time. Despite this, buyers must be prepared to act quickly, even if they get a few additional days to decide. While the housing market remains largely a seller's market due to demand still outpacing supply, it is clear that things are trending slightly as we head into 2022. More homes are coming on the market, and the number of bidding wars has decreased significantly.
One upside to next year is home prices aren't projected to rise as fast. While that will help on the front end, once you own a home (or rental property or whatever else you're buying), that house will appreciate more slowly as a result. That means it takes longer to see a return on your investment. That's not to say you won't make a profit if you sell the home in a year or two. You just won't reap a windfall.
Buying a house may be a bit easier in 2022 than it was this year, but you'll still have some challenges to face. Fortunately, most of those are surmountable with a little preparation and a good plan. Start working on your budget now, find an agent who can help you be competitive, and separate your must-haves from your nice-to-haves. From there, it's all about patience and perseverance.
