The US housing market had a wild year in 2021

Is the US housing market losing steam?

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(CNN) -

The American housing market had a truly wild year.

Home sales in the United States are on track to reach their highest level in 15 years, with an estimated 6 million sold in 2021.

But to know if you benefited from this increase depends a lot on whether you sold your house or bought one.

Homeowners saw median home prices skyrocket nearly 20% during the third quarter compared to the same month in 2020, according to the Federal Housing Finance Agency.

It was the largest annual house price increase in the history of the agency's House Price Index.

And, in some desirable markets, the price increase was double.

The houses also sold at a record rate.

Sellers often submitted multiple competitive offers and cash offers.

Even houses that were disgusting or burned down sold quickly and in quantities that were well above the asking price.

For buyers, it was a different story.

While mortgage rates started the year at record lows, it was difficult even to find a home to buy.

The inventory of available homes hit a record low at the beginning of the year and competition was extremely tough.

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"It was a crazy year" in the housing market

Many potential buyers left the market dejected and without a home to call their own.

As a result, the demand for rentals increased and rents increased across the country.

"It was a crazy year," said Matt Holm, a Compass agent in Austin.

Last January, he put a five-year-old small house on the market at $ 425,000, a comparatively higher asking price than others, and was inundated with deals.

"I stopped counting at 35 offers," he said.

The home sold for $ 545,000, a 30% increase over the list price.

Another buyer, who purchased a luxury lakefront home for $ 6 million in 2020, was offered $ 9 million a few months later and $ 11 million two months later by desperate buyers for a lakefront property, Holm said.

"My salespeople said it's a lot of money," Holm said.

"They wanted to sell and get something as good or better. But they realized they shouldn't sell because getting something a little better than they had would cost $ 18 million to $ 20 million. That's a remarkable jump for a calendar year. ".

Without a doubt, the real estate market was on a wild ride in 2021. Here's what to expect as we head into the new year.

No more low mortgage rates

The year began with the lowest interest rates on record, with average rates for a 30-year fixed-rate mortgage at 2.65%.

But they didn't last long.

By April 1, that had reached a 2021 high of 3.18%.

Rates have fluctuated since then, with the 30-year term set at 3.05% last week, according to Freddie Mac. And we can expect rates to rise even higher in the new year.

The Federal Reserve gave several signs that its pandemic monetary policy will come to an end as it works to curb inflation.

Ultimately, that will drive interest rates up.

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The revised Fed policy won't make a dent in the pockets of people looking to buy a home in the coming months, but they may want to act soon, said Melissa Cohn, regional vice president and executive mortgage banker at William Raveis.

"Mortgage rates should remain in a range of around 3% through the end of the year and hopefully through the first two months of 2022," said Cohn, who anticipates that rates will increase by as much as half a percentage point over the next several months. .

Similarly, Lawrence Yun, chief economist at the National Association of Realtors, expects the 30-year fixed mortgage rate to rise to 3.7% by the end of next year, but noted that it will remain lower than the pre-pandemic rate of about 4%.

"Rising mortgage rates, coupled with savings-eating inflation, will hurt buyers," said Allison Salzer, a Compass agent in San Francisco.

"It will affect buyers of lower and middle-priced homes more than buyers of luxury homes."

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America's housing inventory will remain tight

Although there were more properties available as the spring home buying season heated up this year, there were also more people looking to buy, creating fierce competition and pushing prices sky high.

There were so few houses that people were taking extreme measures like offering to buy the seller's next home for themselves, giving competing buyers thousands of dollars to leave, and paying up to $ 1 million over the home's sales price.

A house in Maryland received seven cash offers.

Inventory was tighter at the lower end of the market.

Homes priced below $ 200,000 were hard to come by, with the number of available properties dropping 19% this year compared to last year, while there was a 40% annual increase for homes above $ $ 600,000, according to HouseCanary, a real estate data company.

While the inventory image is expected to improve in 2022, it is not expected to improve much.

Inventory will remain limited, growing by just 0.3% in 2022, according to a Realtor.com forecast.

"The biggest factor that I see impacting the 2022 real estate market is low inventory," said Paulo Prietto, a Compass agent in Orange County, California.

"While inventory remains low, buyers will become more used to the lack of options and will continue to compete aggressively to buy homes."

As long as that happens, prices will continue to rise.

Home prices will continue to rise

Home prices rose almost across the country in 2021.

While existing home sales reached a median price of $ 353,900 in November, up 13.9% from a year ago, prices for new builds were even higher.

Newly built homes reached an average price of $ 416,900 in November, according to the US Census Bureau, about 19% more than a year ago, and another new record.

While we won't see the double-digit gains made last year, prices are expected to continue rising in 2022 at a slightly more moderate pace.

A group of the top 20 housing and economics experts brought together by the National Association of Realtors (NAR) projected that median home prices will rise 5.7% next year.

NAR survey participants said they expect the housing market and the broader economy to normalize next year as the Fed tries to control inflation.

"The slowdown in price growth will be partly a consequence of interest rate hikes by the Federal Reserve," Yun said.

U.S. Home Buyers Will Continue to Face Challenges

The prevalence of cash deals, few available homes, and skyrocketing prices pushed many first-time buyers off the market in 2021.

By the end of November, buyer participation had fallen to 26% from 32% a year earlier, the lowest level since the National Association of Realtors began tracking in 2008.

"We are creating a divided society," Yun said.

"People don't feel like they are participating in what they consider to be American life through home ownership. All of your work to generate savings may seem less significant in the face of rising prices."

Not only were prices going up faster than people could save for a down payment, but many types of mortgages preferred by new home buyers, such as FHA and VA loans, were often overlooked for cash settlements. or conventional loans.

The inventory of homes at the lower end of the price range was so small that the number of sales priced between $ 100,000 and $ 250,000 fell by almost 20% in November, according to NAR.

And while newly built homes are now starting to come online, most are priced outside of the typical first-time homebuyer budget.

"Builders are focusing more on high-priced homes, with the percentage sold for less than $ 300,000 falling to just 14% from 33% a year ago," said Robert Frick, corporate economist at Navy Federal Credit Union.

But many hopeful homebuyers are saying they will be back in the spring, armed with the knowledge they gained from a frustrated search last year, according to a recent survey by Realtor.com.

"Despite a challenging year, aspiring first-time homebuyers are surprisingly optimistic about 2022," said George Ratiu, manager of economic research at Realtor.com.

"They see the new year as a new opportunity to make their dreams of owning a home come true."

Real-estate market