Now well into the second month of 2022, we as realtors are often asked, “Will the housing market cool down this year?” While rising mortgage rates and a gradual increase in new residential construction are inevitable, experts are not anticipating any slowing of the still red-hot housing market.
To Rent or to Buy?
Regionally and nationally, rental rates have exploded. National rental rates for one and two-bedroom units have risen roughly 13%, while the Reno/Sparks area saw one to three-bedroom units rise an average of 20%. As the amount of “lifestyle renters” climbs and the number of homeowners continues to decrease, it is unlikely that rental rates will decline any time soon, which is expected to keep buyer demand high. If rental rates continue to grow at this rate, it is possible that it will actually become cheaper to buy. This only remains true, however, if mortgages rates do not surge as well.
Rising Costs for Land, Labor, and Lumber
Nationally, only 1 in 5 newly-built homes are priced below $300,000. The significance of this is clear when we recognize that the national median price of a single-family home is currently just above $360,000. On top of this, the majority of homes being built regionally are priced well above the current median sales price of $580,000. This is due in part to the increase in high net-worth individuals moving to the Reno/Sparks area. Lastly, the COVID-19 pandemic created a massive spike in construction costs. Chief economist Robert Dietz states that aggregate construction costs are up 21% from this time last year, and the shortage of skilled labor has driven construction wages up 8%.
Low Inventory, Still High Demand
National housing inventory fell to below 300,000 homes for sale in January of this year. This is less than half of the inventory available prior to the pandemic. Regionally, we are only twelve homes below the all-time low of homes available for sale, set in January of last year. All things considered, the supply of inventory is expected to be the largest factor that dictates what the housing market will look like in 2022.
Build Back Better? Not So Fast
Overcoming the lack of affordable housing is no simple task. The scarcity of affordable housing can be traced back to the Reagan Era when federally funded housing shrunk from 350,000 units built in 1979 to just over 2,600 units built in 1983. It comes as no surprise that homelessness first began exploding in the mid-1980s. Today, Reagan Era policy remains the same; only one in four individuals poor enough to qualify for federal housing assistance receive it. Biden’s “Build Back Better” bill proposes $150 billion in housing assistance for low-income tenants, but experts are not expecting it to pass.
So… Will it Cool Off or Not?
With mortgage rates expected to steadily climb into the year and new home construction beginning to take off (albeit slowly), the intense whirlwind of buyer competition will likely taper off gradually. This is not to say that it will not still be a highly competitive seller's market, however. Low inventory, high demand, high construction costs, and comparatively low mortgage rates are expected to keep the housing market hot throughout the year. Head to our recent blog post to read more about what we’re expecting to see in 2022.
Sources:
Sisson, Patrick. “US Housing Costs Surge, With No End in Sight.” Bloomberg.com, Bloomberg, 4 Feb. 2022, https://www.bloomberg.com/news/articles/2022-02-04/in-sizzling-u-s-housing-market-normal-is-a-long-way-off?utm_campaign=news&utm_medium=bd&utm_source=applenews.
Foscarinis, Maria. “Build Back Better Can Restore What's Been Gutted from US Housing.” TheHill, The Hill, 15 Jan. 2022, https://thehill.com/opinion/white-house/589786-build-back-better-can-restore-whats-been-gutted-from-us-housing.
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