Home Buyers and Renters to Get Some Relief Next Year

It has been a landlord and seller’s market in the rental and housing markets since the pandemic and while the pendulum is not likely to swing entirely to the other side for some time, two new reports from Zillow and Redin suggest that more balance will characterize this segment of the economy.    

For starters, rent growth continued on its deceleration path in October, registering 0.8% month-over-month growth compared to a record high of 2.1% in July, Zillow just reported.

Rents fell from September in eight of the 50 largest US metro areas, compared to just one the month before. The largest monthly drops were in Hartford (-1%), Baltimore (-0.6%) and San Jose (-0.5%), while the largest gains came from Miami (2%), Salt Lake City (1.9%) and Orlando (1.8%).

This slowing is in line with seasonal norms, it said—October had the lowest monthly rent appreciation in 2018 and 2019 and saw no growth in 2020 as rents recovered from the shock of the pandemic. 

Still, the rapid rise in rents since March has pushed annual growth to 14.3%, the highest rate in the series’ history, which began in 2015. Typical rents in the US are $1,873, now $234 higher than last October.

A new projection from Redfin, however, suggests that rents will “only” increase by 7% by the end of 2022, more than double the predicted year-over-year growth in home prices of 3%.

Demand for rentals next year will be strong for several reasons. The end of mortgage forbearance will cause many homeowners to sell and rent instead. As the pandemic subsides, more people will choose to live in cities where it is more common to rent. Additionally, the strong labor market will cause more people to move to a new city, and many movers will want to rent so they can get to know their new city before they buy.

A Calmer Housing Market in 2022

Zillow said autumn and winter home shopping seasons usually feature fewer homes on the market, along with less competition. The October report shows inventory down 17.4% from last year and contracting by 1.1% since September, after rising from May through September. 

Longer time on the market for listings means buyers have more time to weigh their options and schedule home inspections before purchasing. October listings typically spent 10 days on the market, compared to nine in September and seven in April, May and June. 

Median list prices have fallen since July, and the share of homes that saw a price cut before selling rose slightly over September, as well, now standing at 14.7%—nearly double the year’s low point in April. The most recent data on the share of homes that sold above list price shows a monthly decline of 6.6% in September to 47.2%, down from a peak of 51.3% in July. 

For 2022, Redfin is expecting a more balanced housing market.

Higher mortgage rates will end double-digit price growth, and new listings will hit a 10-year high.

Redfin Chief Economist Daryl Fairweather predicts there will be a rush to buy homes at the start of the year before mortgage rates rise. “That early onslaught of demand will deplete the supply of homes for sale,” he said.

In the second half of the year, a much-needed increase in new construction will boost sales slightly, Fairweather said. In 2022, there will be 1% more sales than in 2021, and by the end of the year, home price growth will slow to 3%.

Fairweather predicts mortgage rates will rise to 3.6% by the year’s end, bringing price growth down to earth.

He also said new listings will hit a 10-year high, “which will hardly make a dent in the ongoing supply shortage” but will top the 2018 all-time high.