Housing supply

Housing supply and demand in 2022: what to expect

One of the main drivers of real estate value in any given market is the supply and demand for housing. A balanced market means a healthy supply of buyers and sellers achieving slow but steady growth in house prices over time. But when that balance is out of whack, it can drive prices down or skyrocket, as we see today.

2021 has been an extremely difficult year for housing supply, as buyers have significantly outpaced sellers in most markets. As we look to the year ahead, many are wondering where housing supply and demand will go in 2022. Here’s what to expect.

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Demand could slow some

Low interest rates have been a big driver in creating new housing demand in 2021. The Federal Reserve has said it plans to raise rates slightly in 2022, but that move won’t happen until mid to late 2022. Rising interest rates and today’s already record high housing market mean that fewer people will be able to afford these house prices, and demand will likely slow down a bit. But slowing demand doesn’t necessarily mean things will be back to normal in 2022.

Supply constraints are likely to persist

According to Realtor.com’s latest housing trends report, active listings were down 21.9% year-over-year, meaning there were 179,000 fewer homes for sale. October 2021 compared to the previous year. And it looks like the supply issues are likely to continue.

Supply chain issues will present new challenges for the housing market in 2022 and will certainly not help alleviate the current housing shortage. According to the National Association of Home Builders (NAHB), October 2021 has already seen a 0.7% decline in housing starts, equivalent to 152,000 homes authorized to build but unable to build due to supply chain issues. ‘supply.

Contractors and construction crews also face significant labor shortages. More than 55% of home builders surveyed by NAHB reported a labor shortage in 2021, while 90% of renovators reported a shortage of contractors.

Input costs for homebuilders will also be tested in 2022 as the country faces record inflation rates, driving up material and labor costs. The US Department of Commerce has announced plans to nearly double the tariff on Canadian lumber imported into the United States from 9% to 17.9%, which will have a major impact on lumber prices. Lumber prices have returned to pre-pandemic levels, but from late 2020 to 2021 prices have reached record highs due to pandemic-related shortages and strong demand. Continued rising lumber costs will likely cause more delays to home starts in 2022, further restricting supply.

Overall, it looks like housing supply and demand will remain quite lopsided until enough homes can be produced to meet growing demand, which. according to various sources, will be millions of households. According to data compiled from the NAHB, September 2021 saw 2.4 months of home supply, signifying a fairly aggressive seller’s market.

Seeing levels return to pre-pandemic supply is unlikely in 2022, given challenges within the supply chain, but we hope rising prices will help demand cool home values. .