Why the Housing Market Could Be Less Competitive in 2022

I’ll start with the understatement of the year. Over the past 12 months or so, the U.S. real estate market has been highly competitive.

This is mainly due to a significant and ongoing imbalance between (A) the number of buyers in the market and (B) the number of properties for sale.

The housing market has been so competitive that some buyers have backed out entirely, choosing to wait until things calm down.

Which begs the question: Will the real estate market be less competitive in 2022?

Recent reports suggest that this could be the case. With additional inventory coming onto the market, and a slowdown in home sales, the U.S. housing market could be less competitive for buyers in 2022.

Housing Market Less Competitive for Buyers in 2022?

There are three reasons why the real estate market might be less competitive for buyers next year. As you might’ve guessed, they mostly have to do with supply and demand.

We could see more supply available next year, along with a reduction in demand from buyers. That scenario would help balance the scales a bit and make the housing market less competitive in 2022.

1. Recent report shows a slowdown in home sales.

Earlier this month, the real estate company Redfin published a report that showed a nationwide decline in home sales. According to the company’s data, residential real estate sales nationwide declined by 6% in August 2021 compared to a year earlier.

Similarly, a report from the National Association of Realtors showed that pending home sales declined over the summer months.

These and other reports suggest that the real estate market might be starting to cool down a bit, after months of overheated activity.

If this trend continues going forward, the housing market might be less competitive in 2022 compared to what we’ve become used to. We could see a slightly slower pace next year, in terms of home-buying activity and sales. Buyers might not have to “scramble” quite so much.

2. There could be more supply available next year.

Another important trend within the U.S. real estate market has to do with inventory levels. For many months now, we’ve heard one report after another about tight supply conditions within the real estate market. But that might be starting to change.

In September, Realtor.com published a report that showed a 4.3% year-over-year increase in new property listings nationwide. In some cities, including several in the Midwest region, new listings rose by 15% or more compared to a year earlier.

This is another positive trend for home buyers, and it could make the real estate market a bit less competitive in 2022.

After all, supply conditions are the main reason why the real estate market has been so hyper-competitive over the past year. If more homes come onto the market going forward, they could help balance things out and make the housing market less competitive for buyers.

3. Rising prices will push some buyers out of the market.

According to the real estate data company Zillow, the median home price in the U.S. rose by more than 17% over the past year. Some of the hottest housing markets have seen even bigger gains. Austin, Texas and Boise, Idaho are up by more than 40% over the past 12 months, if you can believe that.

Prices are expected to rise more slowly in 2022, compared to the high double-digit gains of the past year. But in most U.S. cities, house values will almost certainly continue to climb — to some degree.

This trend could make the U.S. real estate market less competitive in 2022, mainly by reducing the number of buyers.

When house prices rise substantially in a short period of time, it tends to push some buyers out of the market completely. Suddenly, there are a lot of people who simply cannot afford to buy a house in their local areas. The more prices rise, the fewer qualified buyers there are.

By reducing demand, higher home values could also make the housing market slightly less competitive in 2022. This affect could be magnified even more, if supply levels continue to rise.

In short, we could see a reduction in demand coupled with an increase in supply. You don’t have to be an economist to know that this could have a cooling effect on the real estate market, making it less competitive for buyers.

On the flip side, the housing scene could be more competitive for sellers next year. For many months now, sellers have mostly had their way in terms of pricing and negotiations. But an increase in the number of homes for sale could change all of that.

In 2022, sellers might find that they have to work harder and be more flexible to land an offer.

Disclaimer: This article includes speculation relating to the real estate market in 2022. Such forward-looking views are the equivalent of an educated guess and should be treated as such. No one can predict future housing market conditions with complete accuracy.