Will The Housing Market Crash in 2022? Here's What Experts Think

2021 was a wild ride in the real estate industry as nearly 6 million homes were sold, topping the charts as the highest in fifteen years, according to CNN.
Competing bids and cash offers scrambled across the market as there didn’t seem to be enough homes available to complement the demand.
Mortgage rates were at record lows, and housing prices surged, rising 18.5% from the prior year (2020), according to the Federal Housing Finance Agency (FHFA).
Does 2022 continue in the upward trend experienced last year, or does it begin a new chapter in the story? Will there be more housing available on the market to purchase? Will prices continue to climb?
These are all questions buyers and sellers alike want answers to.

Will the Housing Market Crash in 2022?

2022 rang in the New Year with a bang. Housing prices have continued to rise, and the demand hasn’t balanced fully yet; however, we are only in the first quarter of the year.
There is still not enough inventory on the market to compete with the increasing demand, creating distress and havoc as buyers become competitive with their bids, attempting to win the sale.
Will there be relief this year?
Experts believe that the housing market will remain strong and that we shouldn’t expect to see a housing market crash. That doesn’t mean that we are not in the clear.

Housing Bubble

Are we in the middle of another real estate bubble (housing bubble)?
Indicators include:

• Increased demand for new or pre-owned houses
• A rise or a decline in housing prices
• Change in mortgage rates
• Increase or decrease in the production of new construction homes
• Mortgage regulation and guidelines updates

We continue to see a number of the indicators above as we continue in 2022. This may indicate that we are floating inside of the bubble. If we are, what happens when it pops?
Bubbles are beautiful and delicate to view but they don’t last long. When a housing bubble bursts, the downstream effects begin such as a decrease in the demand for homes and a decline in home values.
Will the bubble burst in 2022 as it had in 2008? It’s unlikely. Underwriting has tightened up its standards over the years, and the housing appreciation is traced back to the supply-chain shortage and demand.

What Is the CARES Act?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. For struggling homeowners, the Act provides mortgage forbearance.
Without proof, as long as the mortgage is federally backed, homeowners were excused from paying their monthly mortgage payments.
To be federally backed, the mortgage must be one of the following:

• FHA
• VA
• USDA

The CARES Act was originally set to expire on December 31, 2020. It was later extended to June 30, 2021.

New Property Listings

Although inventory still appears to be a concern, homeowners are still listing their properties. In February 2022, there was a 3.13%  increase in new listings, equivalent to 3,686 homes, according to OrlandoRealtors.org,
The primary cause of the new listings is unknown; however, it may be driven by new construction homes, or by homeowners struggling to pay their mortgage after being relieved from forbearance previously received from the CARES Act.

What Do Mortgage Rates Look Like in 2022?

Mortgage rates are rising compared to the record lows experienced in 2021. This, in turn, should help to slow the sales growth recently experienced.
The national average of a 30-year fixed-rate mortgage is 4.3% as of March 2022, according to Bankrate. This greatly increased compared to the average in 2021 at 2.96%.
The Fed has a plan to increase rates aggressively. For example, the purchase of mortgage-backed securities will be stopped, and the short-term Fed funds rate is set to go up.
Mortgage-backed securities are issued and/or guaranteed by the U.S. Government or by government-sponsored enterprises (GSEs). This includes Ginnie Mae, Fannie Mae, and Freddie Mac.
This is not deterring people from browsing the market and pursuing a sale. Yes, it could lighten the demand, but housing prices are still expected to appreciate.
Speaking of fluctuations, what is causing the rates to change? Geopolitical conflict, remote work, and inflation are a few to name.

Current Events (Geopolitical Conflict)

The war between Russia and Ukraine may be miles away, but its effects reign across the world. Rates first declined when the war began, but that was short-lived.
Investors were picking up mortgage-backed securities and other types of bonds as a safe haven. These are genuinely conservative investment options, with a dependable return on investment.
We are all experiencing the stress from rising oil prices, especially at the gas pumps. As upward pressure forms, inflation continues to take a toll on the economy too.

Inflation

Are you still noticing the high prices on the shelves? That’s because inflation is still high, and it isn’t expected to go away.
Because of high inflation, interest rates are on the rise affecting mortgage rates. Rental properties are also charging greater rent. The cost of living is overwhelming for many.
What happens if people stopped taking out mortgages? Housing prices would depreciate, and there wouldn’t be demand left.

Remote

Remote work and hybrid models are dominating the workplace, giving people an opportunity to relocate and change their way of living. Centralized offices are diminishing, becoming a part of history.
People have already begun to move, many from urban areas to suburban ones. This is another factor contributing to the issue at hand between supply and demand.

How Are Rentals Performing in the Market?

Housing prices are not the only ones on the rise. The cost of renting is surging too, and it all goes back to the lack of supply. Overall, housing is becoming unaffordable.
Nearly one-third of the U.S. population rent versus own. Rates vary by state, with the average rent for a one-bedroom apartment around $1,000 per month.
According to a survey conducted by Redfin, a real estate firm, apartment and housing rentals rose in every major U.S. metro area in 2021 except for Kansas City, MO. The survey found that average rent across cities raised 14.1% year over year, with the highest increase coming in Austin, TX (40%). Rasing rental costs cause  saving for a house to be difficult.

What Are the Expectations for 2023?

If the housing market doesn’t crash this year, will it crash in 2023?
Of course, we won’t know until 2023 is closer, but according to Fannie Mae, there is an expectation for price growth to slow down. The effect? An increase in inventory and the potential avoidance of a real estate catastrophe.
Homeownership is changing. The demographics, the process, everything. Millennials are flooding the streets, buying up inventory.
Technology may be a game-changer too. iBuyers, or instant buyers, are changing the way business operates. These are companies that use algorithms to price the value of a home for sale or to make an offer on a purchase.
Virtual home buying and selling are also growing popular. Imagine buying a property without ever stepping foot on the floor?

How To Save for a House Amidst the Rising Costs

Don’t let the rising prices and bid wars discourage you from becoming a homeowner and crossing it off your bucket list. It is possible to save for a house as long as you stick to a budget.
There are also a few investment options you may want to consider, such as exchange-traded funds and real estate investment trusts.

Exchange-Traded Funds

Exchange-traded funds (ETFs) are one of many ways to create a diversified portfolio. They include a compilation of stocks and bonds crossing various asset categories.
An ETF’s function is similar to that of other stocks traded on the market, but with different benefits.
ETFs diversify your stock portfolio, are passively managed to leave you with a lighter invoice, and help you set aside the extra funds you need to buy a home for example.
LifeGoal investments offers an ETF called LifeGoal Home Down Payment Investment ETF (HOM). Publicly traded on the stock market, this ETF is designed to carry 25% stocks and 75% bonds.        

Real Estate Investment Trusts

Investing in real estate does not mean you need to own and maintain a property. There are other options, such as Real Estate Investment Trusts (REITs).
Most REITs are bought and sold through the stock market exchange. They are offered by a company owning, operating, and financing, real estate that is income-producing such as offices, apartment buildings, cell towers, hotels, and more.
REITs may be a steady form of income, especially if they provide dividends. They also have a long-term capital appreciation, making them a great addition to a portfolio in need of some real estate or potentially inflation protected diversification.

The Bottom Line

A prediction is a guess. There is no proven fact that housing will or will not crash in 2022, so we will need to sit back and watch how the housing market responds.
While waiting, invest! REITs are hot on the market and can add value to your portfolio. Exchange-traded funds (ETFs) are another option to explore, adding long-term growth to your investment plan.
Visit LIfeGoal Investments to learn about ETF options available on the market, built with the financial goals of the American People in mind.
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