Housing Market Outlook 2022

If the last two years have shown us anything as it relates to real estate, it’s that the pandemic has had a historic influence on the housing market. First, interest rates fell to historic lows as market activity faltered. Then, home prices rose to historic highs as Americans stuck at home, particularly those lucky enough to be able to work from home, began longing for more space. As pandemic relief payments hit the street, those with stable jobs suddenly had the makings of a good down payment – but as they entered into a market with historically low inventory, over-asking bidding wars became commonplace and pulling off a successful home purchase became difficult, if not impossible.

As the 2022 homebuying season approaches, mortgage rates are slowly rising and inventory remains low. So what does this mean for prospective 2022 buyers? Will history repeat itself? We sat down to discuss with Joannette Cintrón, a community development outreach officer at Old National Bank, and Henry Rucker, a real estate broker at Banneker Realty LLC. (Henry also serves as a financial coach and advisor at Project for Pride in Living in Minneapolis.)

“I think 2022 is still going to see multiple competing offers on homes for sale,” says Rucker. “It won’t be as intense as it has been, but inventory is still low and competing against one or two other offers is still competing. Its just not as intense as going up against ten other offers. On the price front, I do see the rise in prices slowing as interest rates increase, because rising rates will increase the buyers’ monthly payment, and pricing will need to reflect that in order to facilitate closing deals successfully.”

“I agree with Henry’s pricing outlook,” says Cintrón. “To illustrate, consider a purchase of $240,000 with a down payment of $7,200. Last July, you could get a mortgage for this transaction at a rate of 3.125 percent. Today, that mortgage would lock in at 3.75 percent. This increase of just over a half a percent increases the buyers’ payment by about $80 per month, or $1,000 per year. Even more important, when it comes to qualifying for the mortgage, this monthly payment increase cuts the buyers’ purchasing power by $22,000. That’s a huge difference in this market – for instance that three-bedroom home might no longer be an option based on the impact of interest rates increasing.

Rucker also expects down payment assistance (DPA) to begin playing a bigger role in the market, giving more households the opportunity to achieve homeownership. “A lot of new DPA programs are coming online this year,” he says. “The cities of Richfield, Bloomington, Golden Valley and others are launching programs, and that’s a really great thing. The best way for a prospective homebuyer to explore these options is to sit down with a homeownership advisor, as they are up to date on all of the new developments in this area. Of course an advisor also can get you mortgage-ready by doing a soft pull on your credit score, figuring out your debt-to-income ratio and revealing any surprises that might be waiting out there to derail a mortgage transaction. They also can show you what you can do to move your score up, which will help you get a lower mortgage interest rate and save you significant money every year for the life of your loan.”

While higher interest rates mean potentially lower purchase power, Cintrón encourages prospective buyers to not be discouraged. “The simple fact is that we’ll see rents rise as well,” she says. “When you purchase your home, you have much more pricing stability as your principal and interest are locked in place. Plus, you’re building wealth for yourself rather than for your landlord. I’d encourage prospective 2022 buyers to act now to decrease credit card debt, and to meet with an advisor to explore what DPA programs they could qualify for.” Cintrón adds, “Student loans are a big issue too. If funds are tight, you can work with your servicer to see if you can switch to an income-based repayment plan. This could lower your monthly student loan payments, thus increasing your debt-to-income ratio which can get you a higher mortgage amount.”

If you or a client are interested in looking into purchasing a home during 2022, now’s the time to connect with a homeownership advisor. Find one with our online search tool at https://www.hocmn.org/search/?fwp_audience_services=homebuyer-advice.