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What to Expect From Housing and the Economy in 2022

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Though perhaps not as dramatic as 2020, 2021 was another tumultuous year. Fortunately, 2022 is on track to be — at the very least — somewhat more stable than the past two years. But we still aren’t likely to see the housing market and the broader economy immediately return to pre-pandemic norms.

Housing market behavior in 2021 could be described as a blessing and a curse.

  • Blessing: U.S. homeowners saw their home values skyrocket. Many people took advantage of near-record low mortgage rates to buy a home, refinance their loans or tap into their equity. Low rates helped homebuyers offset some of the extra costs associated with the dramatic price increases.
  • Curse: Home affordability issues grew even worse in 2021. Even with low rates, many households found they couldn’t compete in a market with consistently rising prices where bidding wars were the norm.

Meanwhile, the economy was equally hit or miss in 2021. More Americans returned to work — frequently negotiating higher wages — but high inflation offset many gains. Not only that, but the coronavirus has proven remarkably persistent, even as vaccination rates increase.

Will this year be any better? Here are the LendingTree predictions for the state of housing, jobs and the economy in 2022.

Potential economic upsides in 2022

  • The housing market likely won’t crash. Because home prices have risen so much since the start of the pandemic, some may fear the housing market will crash like it did in 2008. But there isn’t much evidence to suggest this. Instead, the housing market fundamentals — like people’s ability to make their mortgage payments — look to remain strong in 2022.
  • Home price growth will moderate. Home prices aren’t likely to fall this year in most parts of the U.S., but that doesn’t mean they’re going to continue to skyrocket like in 2020 and 2021. While this won’t fully alleviate affordability issues, it should provide some relief for people who’ve constantly been priced out of their markets. Further, many who recently bought a home won’t need to panic about suddenly becoming underwater on their mortgages.
  • Supply chains should improve. As more people are vaccinated and return to work, delays in the acquisition, production and transportation of finished goods and raw materials should become less prevalent. This will help alleviate global supply chain issues and put downward pressure on the prices of various goods, including housing.
  • An even better job market is on the horizon. Though the national unemployment rate remains above pre-crisis levels and the labor force participation rate remains relatively low, the jobs market is expected to continue to improve this year. Unemployment should be down by the end of 2022, while labor force participation will likely be up.
  • Inflation may be less of an issue. Through improved supply chains, higher interest rates and reduced consumer spending, inflation should become more manageable as the year progresses. This is good news for households who’ve seen significant portions of their paychecks eaten away by inflation over recent months.

Potential economic downsides in 2022

  • Home prices will remain too high for many buyers. Though less drastic price growth will likely make buying a home easier for some, prices are still poised to remain high in 2022. Some who found themselves pushed out of the homebuying market during the pandemic may still struggle to afford a mortgage.
  • Supply chains won’t fully recover. Global supply chains — even if they’re getting better — have a ways to go before they start operating as smoothly as before the start of the pandemic. Consumers should expect certain goods to remain pricey and/or difficult to find in the coming months.
  • Interest rates will rise. To curb inflation and cool the economy, the Federal Reserve has indicated it will begin to hike rates this year. This isn’t all bad news, as lower inflation should make buying goods and services easier. But those looking to borrow money may need to contend with higher monthly payments than during the pandemic.
  • Personal and household savings will fall. During the COVID-19 crisis, one of the few positives was that personal saving rates increased. Unfortunately, excess savings have quickly diminished as the economy has gradually reopened, and savings may fall even further in the coming months due to inflation.
  • COVID-19 pandemic will still present economic recovery challenges. With the omicron variant leading to more restrictions and shutdowns across the globe, COVID-19 remains a major problem. Even with vaccines and boosters readily available to many in the U.S., the coronavirus will remain an obstacle that keeps full economic recovery at bay.

2022 housing and economic predictions

Average mortgage interest rates will rise to near 4% by the end of 2022

Interest rates might not get to 4% by the time 2023 rolls around, but they’re on track to rise into the high 3% range. Even if they hit 4%, rates will still be relatively low historically.

Nationally, average home price growth will be less than 5%

Home prices throughout much of the U.S. have risen dramatically since the start of the pandemic, but a greater supply of housing on the market and diminished consumer demand driven by higher rates should result in much less growth this year.

By 2022’s end, the unemployment rate will drop below 4%, while the labor force participation rate will rise to around 62%

From the early days of the pandemic through 2021, the unemployment rate dropped from 14.8% — the highest it’s ever been since tracking began in 1948 — to just above 4%. Over the same period, the labor force participation rate gradually ticked up from 60.2% to 61.7%. These trends will likely continue in 2022 as people return to the labor market and find new jobs.

Year-over-year GDP growth will be between 3% and 4%

Gross domestic product (GDP) has been on a steady upward trend since the second half of 2020, rising nearly 10% year over year to more than $23 trillion in the third quarter of 2021. As even more people return to work and both consumers and businesses continue to spend money throughout this year, GDP is poised to continue to grow.

The federal funds rate will increase between 0.5% and 0.75%

The effective federal funds rate has remained at 0.1% or lower since April 2020. But because of recent inflation concerns and the general economic recovery since, the Federal Reserve has signaled it will raise rates this year. Currently, we can expect anywhere from two to three hikes at 25 basis points each. If inflation proves to be particularly sticky in the coming months, these hikes may be more aggressive.

How consumers can set themselves up for success in 2022

Based on our predictions for the year ahead, most people don’t need to worry drastically about the sky falling. But there are things to consider or keep an eye on as the year progresses.

  • If you’re thinking about refinancing and haven’t done it yet, strongly consider it now. With mortgage rates already considerably higher than their pandemic lows, those looking to refinance their mortgage aren’t likely to see as much savings as they would have in most of 2020 and 2021. Nonetheless, rates remain below where they were before the pandemic, so homeowners have time to refinance to a relatively low rate. But that window of opportunity is rapidly shutting.
  • Don’t be afraid of renting instead of buying. Even if more new construction and higher rates dampen home price growth this year, prices will remain unaffordable to many would-be buyers. That said, renting will likely remain considerably cheaper than buying and could be a good option for those priced out of their local markets.
  • Be prepared for change. It’s no secret the economy has been incredibly volatile since the start of the pandemic. While 2022 is on track to be somewhat more stable than the past two years, there’s no guarantee it will be. People should be prepared to quickly react to sudden changes in the housing or jobs market. This could mean trying to set aside more money for an emergency or being ready to quickly snatch up a good deal on a home that just hit the market.

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