Image of a partially built home

Coming off the greatest disruption in a century, in 2022 almost everything on planet Earth - from hobbies to homebuilding - will be prefaced by the effects of the COVID pandemic. For builders and homebuyers, one trend is certain. Uncertainty will rule.

While attempting to predict the trend in homebuilding may seem like an exercise in futility, it must begin with a clear-eyed, but decidedly positive baseline. Mashvisor notes that “One year since the start of the pandemic and the housing industry continues to show resilience. Double-digit home appreciation, low mortgage rates, and the growth of the economic confidence index are things that could not have been forecast in April 2020. According to research conducted by major real estate bodies, the housing market will still be growing in 2022.”

Every component of the residential building ecosystem, whether investors, builders, or homebuyers, can look forward to these six trends in 2022.

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The Six Most Important Homebuilding Trends for 2022

Due to the pandemic, in many ways the home building industry and customers who buy them have acted counterintuitively. However, the old adage is as true as it has ever been. Hindsight is always 20/20.

According to Mashvisor, “Many people, during the height of the coronavirus pandemic, predicted a housing-induced recession in 2020. In reality, there was an unexpected boom in real estate demand, the likes of which had not occurred since 2006. The fact that the housing sector boomed during a time of short-term hysteria and inflation could be an indicator of how the housing market has evolved.”

As usual, the coming year will neither be “feast or famine” for the residential construction industry, but rather a little of both. .

For Builders: Cost of Construction Should Come Down

Most residential developers and homebuilders spent 2021 wringing their hands and wondering when the supply chain would return to normalcy. This source notes, “A big part of the problem with the low inventory in the new construction segment was the high cost of production. There was (also) an inflation problem, albeit short-term, affecting the manufacturing industry. This has driven up the prices of building materials for homes and even automobiles. Lumber prices alone added about $36,000 to new home prices. In the 2022 real estate market, bottlenecks in the supply chain will be fixed with continued economic growth, and many companies will restock their shelves.”

container boats docked offshore

Finally, in December, there was news that supply chain issues are easing. “Epic port congestion is easing. Shipping prices are falling from sky-high levels. Deliveries are speeding up a bit. Businesses are still grappling with a troubling shortage of truck drivers. Critical components, including computer chips, remain scarce. And the Omicron variant threatens to put renewed pressure on supply chains. Still, there is evidence that bottlenecks are beginning to unclog.”

For Buyers: Everything Screams “Buy Now!”

Pummeled by record high prices and bidding wars for existing homes, in 2021 many potential home buyers hunkered down and saved their money. They were waiting until, inevitably, the supply/demand equation reconfigured. Even first-time buyers, with bigger paychecks and stimulus funds in the bank, will likely pounce in the coming year. If the inventory of new and existing homes rises, this could make for robust demand.

In 2022, many experts think that “We will see these buyers re-enter the market in droves. Although prices may still be high in 2022, they would probably not appreciate at the high-flying rates we witnessed in 2020 and 2021.”

Higher Mortgage Interest Rates Could Dampen Demand

The mortgage interest rate in December 2020 was 2.66% and one year later it is 2.75%? While this shows very little change over the year, residential financial experts see an increase in that rate in 2022, although still lower than the rates just a few years ago, and this will cause a slight dampening on the demand for new mortgages.

According to Freddie Mac, the 30-year fixed mortgage rate will increase to 3.8% in the fourth quarter of 2022. This would have a stabilizing effect on price growth as the price-inventory problem continues. Freddie Mac predicts that home prices will rise to 4.4% in 2022, while it expects new and existing home sales to reach 7.1 million in 2021 and then decline to 6.7 million homes in 2022.”

Not a Lot to Choose From

raw land with for sale sign

For hundreds of years, it’s been said: “Buy land. They’re not making it anymore!” This statement shows why most cliches are true. They tend to be accurate.

This lack of land - more accurately, lots for residential construction - will be a trend for homebuyers and builders to grapple with in the coming year. In a recent National Association of Home Builders (NAHB) survey, “76% of builders reported that the overall supply of developed lots in their areas was low to very low. This is an all-time record — by a wide margin — since NAHB began collecting the information in the 1990s. The previous record was 65%, recorded in 2018.

“Responding to questions in the September 2021 NAHB/Wells Fargo Housing Market Index (HMI) survey, 46% of single-family builders characterized the supply of lots simply as low, and 30% said the supply of lots was very low, for a total of 76% of builders indicating some type of problem with lot supply.”

Home Buyers Will Be More Cautious About Closing the Deal

Several of the factors noted above, along with examples noted in the Acme Brick home design predictions for 2022, caused homebuyers to lose their perspective and go, well, a little crazy. When homes stay on the market for less than a week and the supply chain keeps construction materials, appliances and even furniture on a boat somewhere offshore, home buyers panic and do dumb things.

One example of this is found in a Wall Street Journal article. “In such a fast-moving market, buyers have little time to commit to one of the biggest purchases of their lives and sometimes forego traditional safeguards. Many buyers have waived their rights to terminate a contract because of a low appraisal or unfavorable inspection to make their offers more competitive in a bidding war.”

As inventory increases, home buyers will take more time to consider the ramifications of buying an older/existing home in 2022. Plus, because of the freedom of working from home, some will choose to leave their old, urban dwelling entirely and move to a lower cost, more serene smaller community.

Property Values Will Remain High…Or Will They?

It has been widely reported that the highly regarded real estate brokerage service, Zillow, was bullish on property values staying high for the foreseeable future. This article notes, “Zillow’s market forecast believes that U.S. house prices would have risen 11.8% by April 2022. Zillow Economic Research predicts that annual home value growth will rise to 13.5% in mid-2021 and that home values ​​by the end of 2021 will increase 10.5% from their current levels. Zillow forecasts that sales volume will remain elevated in the coming year, reaching 6.9 million sales in 2021, the most since 2005.”

Recent events call into question the wisdom of the messenger - Zillow. As this news report notes, “Real-estate firm Zillow Group Inc. is exiting from the home-flipping business, saying Tuesday that its algorithmic model to buy and sell homes rapidly doesn’t work as planned. The firm’s termination of its tech-enabled home-flipping business, known as ‘iBuying,’ follows Zillow’s announcement about two weeks ago that it was halting all new home purchases for the rest of the year.”

If Zillow, with all its technical expertise and billions of dollars of investment in residential properties, is unable to accurately predict the future value of homes, real estate brokers and their clients might want to carefully consider any “expert” advice on potential property valuations.

Barring any unforeseen calamities, 2022 could be a good year for homebuilders and buyers. However, the effects of inflation, new COVID variants, or other market disruptions could change everything. As always…caveat emptor. “Let the buyer beware.”

 

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