10 Harsh Realities of House Hunting in 2022
To say that the housing market has been moving at breakneck speed, with homes being snapped up almost the minute they are listed, is hardly hyperbole. Find out where would-be buyers stand today, and where the market might be headed.
Many home-buying hopefuls dutifully donned masks to attend open houses in late 2020 and 2021 only to find themselves priced out of a housing market that heavily favored sellers. Although Covid-19 mandates have come and gone since, the market remains highly competitive and even combative. Meanwhile, sellers are still sitting pretty, accepting offers well above asking price.
If you want to buy a home in 2022, be prepared—financially and emotionally—for some harsh realities. If you’re too conservative in your offer, take too long to consider a particular listing, or can’t cough up a solid 20 percent down payment, you’re bound to miss out. Even if the stars align and everything goes according to plan, you could end up holding the deed to a house you don’t even like very much (let alone love) if you settle.
Before you start looking at listings, know what to expect if you go house-hunting in 2022.
1. The hunt itself is challenging.
The past two years have truly emphasized the “hunt” aspect of house-hunting. Unless you have an unlimited budget, are satisfied with any location, and couldn’t care less about a home’s architecture or amenities, your first hurdle is finding a house to buy at all.
The state of the market bears this out, with some surprisingly dire statistics—just ask Zillow. According to the site’s December 2021 Market Report, home scarcity is at a record high. Between December 2019 and December 2021, national home inventory dropped by a jaw-dropping 40.5 percent.
2. Prices still haven’t peaked.
In 2021, the median home sale price rose nearly 17 percent over the previous year, reaching $346,900, which is the highest yet in the 21st century. The National Association of Realtors (NAR) and Zillow predict home prices will further increase in 2022, by 5.7 percent and 11 percent, respectively.
The factors that determine home prices, however, are fickle. If would-be buyers collectively decide to wait and stop paying through the nose for homes, or if more people than predicted put their property up for sale, home costs may well drop. Other variables—including mortgage rates, the job market, and pandemic factors—also contribute to the uncertainty.
3. Mortgage rates continue to rise.
There’s not much point in evaluating home prices without also looking at mortgage rates under the microscope. And there’s plenty to see in that figurative petri dish, as average mortgage rates recently topped 5 percent for the first time in a decade.
Buyers who prequalified for a mortgage in the not-so-distant past may want to start the process over again to avoid nasty surprises down the line. It’s also smart to comparison shop and, if possible, reconsider other variables like mortgage type (fixed rate versus adjustable rate), loan terms, and down payment amount.
4. DTI and down payment matter more than ever.
Today’s difficult market demands that buyers have their financial ducks in a row, so be sure you’ve met all of the following criteria.
- Have your down payment ready to go. Don’t wait to liquidate assets or shuffle sums from one account to another. Ideally, your down payment should be 20 percent of the home’s total cost.
- Know how much mortgage you can afford. The standard amount is twice (or 2.5 times) your gross annual income.
- Manage your DTI (debt-to-income ratio). DTI is one of the major factors used by mortgage lenders in approving your application and setting terms. Most lending agencies want to see your DTI is no higher than 43 percent.
These are general rules in an ever-changing market, so be aware that these aren’t figures aren’t set in stone. There may be some wiggle room depending on numerous variables, but it’s now more essential to present your financial assets in the best possible light than in recent years.
5. Bidding wars are inevitable.
The term “asking price” is a misnomer these days. It no longer means a buyer may not actually have to pay that sum in the end. Asking price is now more akin to a minimum reserve at a high-profile auction; offers will skyrocket well past that modest amount in almost every case.
Legions of hopeful home buyers are submitting offers that are tens of thousands of dollars above asking price, only to later learn that a dozen other buyers have outbid them by tens of thousands more.
6. Things escalate quickly.
As you and your real estate agent formulate a game plan, consider adding an escalation clause to your bag of buyer’s tricks. An escalation clause is simply a promise to the seller that you will not just meet but exceed a higher offer should someone outbid you. Like an all-cash offer, an escalation clause is one way that buyers can stand out amid stiff competition.
7. Houses sell like hotcakes.
In 2012, the median number of days a house spent on the market was 69, according to the NAR. In July 2021, the median number of days on market was seven.
Since then, the headlong pace has become a bit more leisurely. A seller can now expect to see that “For Sale” sign in their front yard for about 18 days.
Home buyers would nevertheless be wise to clear their calendars while searching in earnest. When your real estate agent calls with a property that’s perfect for you, a day’s delay in viewing it could mean you’ll miss out. Be ready to spring into action, which means you may have to weigh the cost of taking time off from work if necessary (or possible).
8. Compromises will be necessary.
One of the harshest real estate realities of 2022 is that few buyers will find their dream home at an affordable price. Your expectations will unfortunately have to be adjusted to meet your budget.
Plenty of home buyers are reevaluating priorities and rethinking plans, opting for fixer-uppers or buying houses that are “good enough” with the aim of trading up once the market settles down. Experts recommend that buyers remain in (or at least retain) a home for a minimum of 5 years, outside of extenuating circumstances like cross-country moves or career changes. Otherwise, they may lose money due to high transaction expenses.
“The biggest difference for us came when we relaxed our rules about where we wanted to live,” says Laura Riker, detailing the experience she and her husband, Joe, had while house-hunting near Ithaca, New York. “For many years, our only thought was staying in the school district where we already lived, but once we opened ourselves up to living in other areas, the number of possible homes for us to see grew substantially.”
9. Alternatives are worth considering.
Avocado toast jokes aside, millennials are to thank for bringing alternative housing options into the mainstream. It’s no longer unique or quirky to build yourself a tiny house on a small plot or downsize your belongings and take to the road in an RV—these are now viable alternatives to a 30-year mortgage.
If a tiny house sounds too claustrophobic or the RV life isn’t for you, renting is always an option. Although it’s not ideal for everyone, a rental might be the best (or only) option for many. After all, paying rent for a few additional years could make more sense than going into debt for a home that isn’t right for you.
10. The stress factor has soared.
House-hunting and home-buying are stressful, even in the best of times. Certain stretches of the road to homeownership are always difficult to navigate. It’s likely going to be a wild ride, emotion-wise. Be patient with yourself and, if you have one, your partner. Lean on your real estate agent, who almost certainly has more industry experience and a clearer perspective of the situation than you do.
“Our Realtor, a friend of the family who had started working with us 6 years ago, helped us navigate early steps, such as connecting with banks to get preapprovals,” explains Riker, whose family moved into a four-bedroom, 3,000-square-foot home in June 2021, one month after closing. “A good Realtor and a good relationship with the bank were absolutely required in this process.”
Throughout your house hunt, do plenty of online research, keep organized, stay grounded, and try to maintain your sense of humor. And remember that despite your inability to control most elements of the process, you do have dominion over one area: the way you act and react as you search for a place to call home.