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2022 second-quarter housing trends: Rising rates complicate spring homebuying

A house roofline in front of a graphic background.
Volodymyr Kyrylyuk/Adobe Stock Illustration by Bankrate
A house roofline in front of a graphic background.
Volodymyr Kyrylyuk/Adobe Stock Illustration by Bankrate

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The second quarter of 2022 overlaps with the start of the traditional spring homebuying season, and this year promises to be another competitive one as buyers jockey over a still-limited number of listings. Here’s what experts say the real estate market will look like in the coming months.

Rising mortgage rates extend affordability squeeze

The biggest trends to watch this quarter are around mortgage rates and home pricing. Both rates and prices are expected to rise, but quickly increasing mortgage rates should put pressure on property price growth to slow somewhat.

“The one thing I’m concerned about is the erosion of home affordability, especially with the runup we’ve seen in mortgage rates over the last couple of months,” says Frank Nothaft, chief economist at CoreLogic.

Not only do buyers have to contend with higher mortgage rates that equate to larger monthly payments, but the sharp increase in property prices over the last year means those buyers will need to have more cash on hand to get to closing, too.

“I’m a little worried that we’ll see pullback by first-time homebuyers,” Nothaft says, suggesting that higher prices coupled with higher mortgage rates could push some would-be new homeowners out of the market.

But, as rents also increase in many markets, more and more people are weighing the costs of renting versus owning a home. “I think the market is going to continue to look good in Q2, because look what’s happened with rents,” says Nick Bailey, president and CEO of RE/MAX. Bailey adds that higher rents make tenancy less affordable and could push some to pursue buying instead.

Low housing inventory issues persist

Raw material costs remain high and builders continue to struggle to keep up with homebuyer demand.

“It’s no secret: There’s an estimated 4 to 6 million homes that we’re short in the U.S.,” Bailey says. “Even though new housing starts are at their highest clip in a decade, it’s still slow getting them off the ground. There’s a backlog, and there’s a home shortage.”

On top of that, says Nothaft, rising mortgage rates could encourage current homeowners who would otherwise downsize to stay in place.

“If you’re a homeowner and you’ve got your 3 percent fixed-rate mortgage or your 2 percent 15-year fixed-rate mortgage,” he says, “we may see the higher mortgage rates have a bit of a lock-in effect, leading some prospective home sellers to take a pause and not sell at this time.”

Giving up such a low-interest mortgage, even on a potentially oversized house, could be more expensive in the long run than staying put.

Competition among homebuyers remains fierce

Although home sales fell slightly by some metrics during the first quarter, that may just be a seasonal pattern. Most experts expect the spring to be as busy as ever for real estate transactions.

“We’re likely to continue to see these extraordinarily tight conditions in the homebuying market,” Nothaft said.

In February 2022, homes sold in an average of 35 days nationally, according to RE/MAX data. That number was as low as 14 days in Nashville, the most competitive market that month.

Such fast closing timelines can make it especially difficult for first-time homebuyers to compete.

Advice for buyers and sellers

The market will still be quite competitive this spring, so Nothaft emphasizes that it’s important for buyers to have their ducks in a row. Some good things to do, he suggests, include:

  • Getting prequalified or preapproved for a mortgage
  • Researching the neighborhood where you want to move
  • Understanding your “have to haves” versus “want to haves” when you’re looking at properties

And above all, don’t wait to buy if the numbers seem to work out for you now.

“Most likely, a year from now, mortgage rates will be even higher and home prices will be even higher,” Nothaft says. The market might leave you behind if you try to hold on for more favorable conditions.

For sellers, meanwhile, it’s still a good idea to make sure your property is attractive to buyers and that your asking price is reasonable. It’s also smart to make sure you know where you’re going next, whether that means buying another property while you sell your current one, or having a rental lined up.

Bottom line

This spring homebuying season is going to be another busy one, and buyers especially will have to be prepared and ready to pounce when suitable properties become available. The trends that have been here for much of the pandemic will continue to linger — but rising mortgage rates could start to exert some pressure for the market to adjust.

 

Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Senior real estate editor