Whether you view 2021 as a banner year for the real estate market or a nightmarish one may depend on which side of that market you were on.
Sellers had unprecedented leverage this past year, with most homes selling quickly and above the asking price. Buyers, meanwhile, faced skyrocketing home prices and intense competition for scarce listings. Through October, the median Massachusetts single-family home sold in 2021 fetched $530,000, a 16.5 percent jump over the first 10 months of 2020, according to the Massachusetts Association of Realtors — and flew off the market in nearly half the time.
But experts are predicting a slightly more balanced housing market in 2022, with greater equilibrium between supply and home buyer demand. “It’s going to be less frenzied for buyers,” said Gay Cororaton, senior economist and director of housing and commercial research at the National Association of Realtors.
“We expect more modest price appreciation of less than 5 percent, compared to the double-digit gains we’ve had,” Cororaton said — though she noted that the Boston area, with its booming health sciences industry, could still see price gains that top 10 percent. Similarly, economists at Realtor.com predict existing home prices will increase by 7.5 percent in the Boston metro area next year, compared with 2.9 percent nationally.
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Economists expect mortgage rates to inch upward next year, putting some downward pressure on prices by limiting how much home buyers can afford to borrow. The average interest rate on a fixed-rate, 30-year mortgage was 3.1 percent in early December, according to Freddie Mac’s Primary Mortgage Market Survey, but the NAR expects rates to reach 3.7 percent in 2022.
Redfin chief economist Daryl Fairweather also expects year-over-year price gains to slow down — to about 3 percent by the end of 2022. That’s largely due to rising mortgage rates, Fairweather said, which she predicts will creep up to about 3.6 percent by this time next year.
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“I think that there’ll be a rush to buy homes at the beginning of the year before mortgage rates go up,” Fairweather said. “But then, once those higher mortgage rates do start to bite, demand will slow down, and in turn that can encourage more people to sell.” As homeowners realize the intense seller’s market won’t last forever, she said, “that can get some people off the sidelines.”
Meanwhile, an increase in homes for sale should give buyers more options and further rein in price increases. Cororaton and Fairweather both expect housing starts to increase slightly next year as supply chain issues ease, though builders will still be constrained by the ongoing shortage of construction workers.
What’s more, homeowners who have put off selling or relocating due to the pandemic also could add some much-needed inventory to the housing supply, said George Ratiu, manager of economic research at Realtor.com.
In a spring 2021 survey conducted by Realtor.com, just 10 percent of homeowners said they intended to list their home for sale in the next year. But by October, a follow-up survey indicated that 26 percent of homeowners had plans to sell. “It’s a clear indication that homeowners across the country are ready to move forward with their pandemic-delayed plans, whether they’re retirees looking for the next stage of life or they’re young parents looking for a home in a school district where their kids are coming of age,” Ratiu said. That will help propel the number of home sales to a 16-year high in 2022, according to Realtor.com’s official forecast.
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Though the pandemic persists, people at least have a better grip on what to expect from it now and are once again confident enough in their future plans to make “life-cycle moves,” said Keren Horn, associate professor of economics at the University of Massachusetts Boston.
“We sort of have a handle on what our jobs are going to be like, what our family life is going to be like, and so people are now able to make decisions that are right for themselves,” Horn said. “People are selling because they know what they want now and where they want to go, what they want to do — where a lot of that was not happening [earlier in the pandemic]. People were just paralyzed by the shock, and so supply was really, really limited. Retirees were not moving to their next home, not making that home available to the family that needed it.”
Speaking of life-cycle moves, Ratiu expects America’s massive cohort of millennials — who helped spur an urban real estate boom over the past decade — to fuel sustained demand for suburban houses, as about 4.5 million of them turn 30 each year for the next three years.
“After roughly a decade or so of driving the urban renaissance — we’ve seen millennials really drive the rebirth of downtowns — now they’re in their 30s,” Ratiu said, with the oldest millennials turning 40 this year. “They have families, they have kids. There’s a clear shift toward suburbs and even small or midsize cities within what is sort of the new commuting radius in the age of remote work, which is a two-hour commute.” In the Boston area, Ratiu noted, that includes markets like southern Maine and New Hampshire, Cape Cod, and Western Massachusetts.
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At the same time, Ratiu and others expect cities and downtowns to remain attractive to buyers. “I am quite bullish on the outlook for cities and downtowns going into 2022 and beyond,” Ratiu said. “I say that because I look at a longer historical period … humans have tended to aggregate in metropolitan areas, where talent, entrepreneurship, and so on can be leveraged for much better outcomes.”
Fairweather expects both city centers and the condo market to do well in 2022, noting that buyer interest in single-family homes peaked in the summer of 2020. “That was at the height of the pandemic, when I think people were just really paranoid about being in close proximity with other people,” she said, and when the amenities and conveniences of urban life and condo buildings were largely nullified. “All of that has reversed, so I think we’re going to see a return to the city and more interest in condos,” Fairweather said — partly because home prices have gotten so high that buyers who can’t afford a single-family house will simply have to settle for a condo or town home.
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“People are coming back to the big cities,” Cororaton echoed, noting that apartment absorption had increased by more than 1 million units since the second quarter of 2020. “Renter demand for apartments is an indication of where people are moving, and people have started returning to New York, to Boston, to Washington, D.C., to Chicago.”
Rents already are rising nationwide, Fairweather said, and she expects them to increase by about 7 percent in 2022. “A lot of people who are priced out of homes are going to choose to rent, and that demand will drive up rents — because you’ve got to live somewhere,” she said.
After nose-diving early in the pandemic, median rents in Boston rebounded dramatically in 2021, up 23.8 percent in December versus a year ago, according to rental website Apartment List. Still, Boston rents remain just 1 percent higher than they were in March 2020, at the start of the pandemic, said Chris Salviati, senior housing economist at Apartment List.
“I think it’s possible that as COVID drags on and remote work arrangements continue, Boston and some of these other costly markets may continue to experience some softness,” Salviati said. “Note that I’m referring to Boston proper here — we’re seeing faster rent growth in many of the surrounding suburbs and in farther-out areas such as Worcester.”
For buyers seeking greater affordability, Fairweather expects a new set of inland metros to usurp once-cheap Sun Belt cities like Phoenix and Austin, Texas, which have both seen home prices climb more than 30 percent since the start of the pandemic. “A lot of people coming from California, they think they’re going to get some big bargain by moving to Texas, and then they start to look at the housing market and realize that it’s almost as tough as it is in California now,” Fairweather said.
With low-priced homes and educated workforces, Fairweather said, Rust Belt capitals such as Columbus, Ohio, Indianapolis, and Harrisburg, Pa., already have started seeing a net inflow of residents, anecdotally driven by people looking to move closer to family or the places where they grew up. “Plenty of people left the Midwest after the last recession in search of jobs,” she said. “Now that you can take your job with you, you can go back home if you want to.”
Wherever home buyers are shopping, they can still expect high prices and a good deal of competition. But compared with the frustration-filled spring of 2021 — a market so tight that many would-be sellers were afraid to list their homes, lest they not find one to buy themselves — buyers will at least have a fighting chance in 2022.
“It will be easier for buyers to get an offer accepted,” Fairweather said. “It won’t be cheaper for them — prices aren’t going to go down, they’re still going to grow, albeit slowly. But they won’t have to worry so much about getting outbid by somebody who just has more cash or is willing to waive more inspections ... the typical home buyer who wants to take their time and wants all the inspections done is going to have an easier time at it.”
Jon Gorey blogs about homes at HouseandHammer.com. Send comments to jongorey@gmail.com. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter at pages.email.bostonglobe.com/AddressSignUp. Follow us on Facebook, LinkedIn, Instagram, and Twitter @globehomes.