US home inventory drops below 1M: What’s next for real estate this year?

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One pairing that continues to rule in 2022: soaring demand and tight inventory. With remote workers pushing into new markets, buyers returning to the cities and a wave of first-time homebuyers entering the market, demand has certainly outpaced supply, leading home pricing to all-time highs.

Yet despite the tight inventory and rising prices, more than 6 million homes were sold, the highest number since 2006. And according to Zillow’s recent report, active inventory dropped below 1 million in December, nearly 41 percent lower than inventory levels two years earlier.

The question many of us are wondering is, what is ahead for the year? There’s one thing we’ve learned over the past two years since the rise of COVID: The future is never crystal clear.

What the future of work looks like will almost certainly shape major markets. It remains to be seen whether companies will resume occupancy of large office spaces or go with a scaled-down, more remote-focused environment. Savings in overhead could translate to an increase in wages, possibly helping to balance out the affordability issue.

What we can say for sure is that there is no bubble to burst, and a strong market is expected throughout 2022. Even if price appreciation slows this year, home prices will still be 20 percent above pre-pandemic levels.

Even if mortgage rates continue to rise, they will still be more favorable than in the recent past. In the U.S., the Federal Housing Finance Authority is raising conforming loan limits by a record 18 percent in 2022, the highest surge in history, and therefore increasing purchasing power across the U.S. market.

I believe demand will continue to outpace supply until more new construction projects make their way into the marketplace. The demand in the new development sector is focused on turnkey, well-serviced offerings, which bodes well for hotel brands wading into the residential sector.

However, stringent policies on new development and the high cost of materials across the globe aren’t currently favorable for a large shift this year. Still, new home construction did ramp up unexpectedly during the holiday season, and some relief is hopefully on the way.

Just as in 2021, the number of homes sold will remain high, evidence that the next generation aging into the residential market still sees real estate as vital, whether they’re leasing or buying primary and second homes.

It remains to be seen how long and how high inflation will go and what effects it’ll have on global consumer spending as people are less inclined to dip into their savings to buy, remodel or renovate. More world governments are making moves as they plan to step into the fight against inflation in the year ahead.

As for luxury buyers, they still have ample disposable income to spend on simultaneously diversifying their portfolios and enhancing their lifestyles. Additionally, a new generation of buyers is here to stay, driving the push toward a blend of tech and agent services in the industry.

Across the market, people will continue investing in real estate, whether they’re seeking a place to call home, a vacation retreat or an income-generating property. After all, home is still where the heart is and where the big money is invested.