Biggest Challenges Facing the Market in 2022

By Kelly Leighton | Jan. 20, 2022 | 3 min. read

Rising mortgage rates and growing rental prices are going to continue to make the housing market a challenge for buyers in 2022.

According to Danielle Hale,® chief economist, in a PAR webinar on Tuesday, rents are expected to rise 7.1% in 2022, compared to housing prices, which are only expected to rise 2.5%. “Rents are increasing and it creates a challenge for renters. Rising rents are going to continue to push people in the housing market,” she said. The down payment is what is the most difficult for buyers, most can afford the monthly costs, she added. With more renters looking to buy, competition among sellers may be increased.

Mortgage rates hit historic lows in 2021, which helped offset the increase in home prices, Hale said. However,® predicts rates will reach 3.6% by the end of the year, as rates have already risen higher than expected. With inventory expected to continue to remain low, this may limit some homebuyers, especially first-time buyers who do not have equity from another home.

“Millennials are still a major force in the first-time buyers  for the next three years,” said Hale. “That alone is going to make it difficult to see balance [in the market] in the next few years. The market is going to be pretty competitive through 2025.” Since Generation Z is a smaller cohort, demand for first-time buyers may shift to “trade-up” homes, Hale said.

For 2022, expect home prices to raise 2.9% nationally, with Pennsylvania home prices expected to rise 3.5%. While this is a modest gain, Hale said to remember it is on top of double-digit gains seen recently. “There is too much imbalance in demand and supply, I don’t think we’ll see prices dip,” she added.

“All Pennsylvania markets are expected to do well,” she said. “Pennsylvania is really poised to benefit to this shift to remote work, it’s not too far from major hubs, like NYC, Baltimore and Washington, D.C.” Hale added that more than 40% of Philadelphia home shoppers are coming from Washington, D.C. or New York.

“People are looking for quiet neighborhoods, more space indoors and outdoors and flexible space,” she said. “The big challenge for agents is setting expectations and keeping up with the changes.”

Hale also noted that sellers are also struggling with where to go between selling their home and finding another home to buy. A lot of sellers are looking for assistance with their Realtor® and navigating that.

While inventory is still down 25% from a year, Hale said construction is picking up, after struggling pandemic-related challenges. Household growth is expected to slow a bit, which could help the market, but  the supply-demand imbalance supposed to be remain high, she said

“Affordability may be more challenging for buyers,” added Hale. “The inventory picture is pretty relevant. There is a lot of buyer interest, but not a lot of seller interest.”

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