Higher Rates And Short Supply The State Of Real Estate In 2022

Dated: June 2 2022

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Higher Rates and ShortSupply: The State of Real Estate in 2022

Thelast two years caught many of us off guard—and not just because ofthe pandemic. They also ushered in the hottest housing market onrecord, with home prices rising nationally by nearly 19% in 2021,driven primarily by low mortgage rates and a major supply shortage.1

Butwhile some had hoped 2022 would bring a return to normalcy, the U.S.real estate market continues to boom, despite rising interest ratesand decreasing affordability.

Sowhat’s driving this persistent demand? And is there an end insight? Here are three factors impacting the real estatemarket right now. Find out how they could affect you if you’re acurrent homeowner or plan to buy or sell a home this year.


Overthe past couple of years, homebuyers have faced intense competitionfor new homes—in part due to historically low mortgage rates thatwere a result of the Federal Reserve’s efforts to keep the economyafloat during the COVID-19 pandemic.

However,in response to a concerning level of inflation, the Fed is nowreversing those efforts by raising the federal funds rate. And as aresult, mortgage rates are rising, as well. Few experts predicted,though, that mortgage rates would go up as quickly as they have.

InJanuary 2022, the Mortgage Bankers Association projected that rateswould reach 4% by the end of this year.2 By mid-April,however, the average 30-year fixed mortgage rate had already hit 5%,up from around 3% just one year prior.3 On a $400,000mortgage, that 2% difference could translate into an additional $461per monthly payment.

Sincethen, mortgage rates have continued on an upward trend. So whatimpact are these rising rates having on demand? While many buyers hadhoped for a cooling effect, experts warn that may not be the case.

AliWolf, chief economist at housing market research firm Zanda, toldFortune magazine, "Rising mortgage rates are having acounterintuitive effect on the housing market. Home shoppers areactually sprung into action in an attempt to buy a home beforemortgage rates rise any higher."4

Sinceinventory remains low, the resulting “race” has kept thehomebuying market highly competitive–at least for now.

Whatdoes it mean for you?

Whilecurrent 30-year fixed mortgage rates represent an increase overprevious months, they remain well below the historical average of8%.5 As inflation across the economy continues, the Fed islikely to raise rates further this year. Buyers should act fast tosecure a good mortgage rate. We’d be happy to refer you to a lenderwho can help.

Forsellers, speed is also of the essence. The pool of potential buyersmay shrink as mortgages become more expensive. And if you plan tofinance your next home, you’ll want to act quickly to secure afavorable rate for yourself. Contact us today to discuss youroptions.


Historyshows that higher interest rates don’t necessarily translate tolower home prices. In fact, home prices rose 5% between 1980 and1982, a period of significantly higher mortgage rates and inflation.5

Forecastersexpect that home prices will continue to go up throughout 2022,though likely at a slower pace than the 18.8% increase of the last 12months.4 Bank of America predicts that prices will be upapproximately 10% by the end of this year, while Fannie Mae estimates11.2%.6,7

Inaddition to limited supply and a race to beat rising mortgage rates,home values are also climbing because of positive economicindicators, like low unemployment.8 Plus, rents aresoaring–up 17% from a year ago–which is prompting more first-timehomebuyers to enter the market.9 Add to that the continuedpopularity of remote work, and it’s easy to see why property pricescontinue to surge.

However,it’s not all bad news for prospective homebuyers. Economists expectthat as mortgage rates rise, the rate of appreciation will continueto taper, though the effect may be gradual.

“Eventuallymortgage rates will slow down home prices,” according to KenJohnson, an economist at Florida Atlantic University interviewed byMarketwatch.10 “We should not see rapid upticksin prices as mortgage rates rise.” Forecasters agree—Fannie Maeexpects price increases to slow to 4.2% in 2023.7

Whilethe pace of appreciation is likely to decrease next year, home pricesshow no signs of going down. However, current labor shortages areleading to higher salaries and better job opportunities for manyworkers. You may find that your income growth outpaces home prices,making homeownership more affordable for you in the future.

Forhomeowners, the outlook’s even brighter. You could find yourselfsitting on a nice pile of equity. Contact us for a free home valueassessment to find out.


Asnoted, one of the largest hurdles to homeownership is a lack ofinventory. According to a February 2022 report by Realtor.com,there’s an expanding gap between household formation and homeconstruction, which has resulted in a nationwide shortage of 5.8million housing units.11

Theorigins of this shortage date back to the 2008 housing crisis, duringwhich crashing home values led contractors to stop building newproperties—a trend that has not been fully reversed.12

Thatdecline in home construction also resulted in a decrease in thenumber of home building professionals, a trend that was exacerbatedby job losses during the COVID-19 pandemic. Now, many builders arelimited by their ability to find qualified labor.

Anothermajor challenge is a staggering increase in the cost of materials.Pandemic-related supply chain shortages have been a significantdriver, with home building material costs rising on average 20% on ayear-over-year basis. The price of framing lumber alone has tripledsince August 2021.13

Thesetrends add tens of thousands of dollars to the cost of a typicalhome. Factors like a lack of buildable land in many areas,restrictive zoning, and a shortage of developers are alsocontributing to the issue.14

Mosthomebuying experts agree that the lack of inventory is the primaryfactor driving rising housing prices and unprecedented competitionfor homes. With available housing units near four-decade lows, theend of the current housing boom is not yet in sight.15

Prospectivebuyers should be prepared to compete for a home, since low inventorycan lead to multiple offers. You may also need to expand your searchparameters. If you’re ready to look, we’re ready to help.

Forsellers, the picture is rosier. In this strong market, your home maybe worth more than you realize. Contact us to find out how much yourhome could sell for in today’s market.


Whilenational real estate trends can provide a “big picture” outlook,real estate is local. And as local market experts, we can guide youthrough the ins and outs of our market and the local issues that arelikely to drive home values in your particular neighborhood.

Ifyou’re considering buying or selling a home, contact us now toschedule a free consultation. We can help you assess your options andmake the most of this unique real estate landscape.


    Marketwatch -https://www.marketwatch.com/picks/home-price-appreciation-will-normalize-what-5-economists-and-real-estate-pros-predict-will-happen-to-home-prices-in-2022-01646940841

    Bankrate -https://www.bankrate.com/mortgages/mortgage-rate-forecast



    National Association ofRealtors-https://www.nar.realtor/blogs/economists-outlook/instant-reaction-mortgage-rates-april-07-2022


    Fortune -https://fortune.com/2022/03/07/what-home-prices-will-look-like-2023-fannie-mae/

    Fortune -https://fortune.com/2022/03/17/home-prices-drop-housing-markets-california-michigan-massachusetts-corelogic/

    CNN -https://www.cnn.com/2022/03/23/success/us-national-rent-february/index.html






    Fortune -https://fortune.com/2022/03/14/housing-market-key-metric-inventory-zillow-bad-for-buyers/

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Otniel Gil

Otniel Gil has been a top agent in Treasure Island, FL real estate for over 10 years. Prior to entering the real estate business, he was in the insurance & wealth management industry and his backg....

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