This article is part of a larger series on How to Become a Real Estate Agent.
Real estate professionals and potential buyers and sellers should look at common housing market indicators, such as affordability, days on the market, time of year, market type, and trends, to determine the best time frame for profitable transactions. Several analysts and homebuyers are pessimistic about the housing market in the second half of 2022 due to increasing interest rates, home prices, and rental rates. However, these conditions favor homesellers and agents who can earn premiums for properties sold.
1. Local Housing Affordability
The Housing Affordability Index measures a family’s ability to qualify for a mortgage loan on a median-priced home at the national and regional levels. This is usually measured based on income and the most recent price data.
Homeowners should have a house they’re able to pay for while still having enough money for other basic necessities like food, healthcare, and transportation. An affordable home, according to the federal government, is a home that consumes no more than 30% of a household’s income.
How Local Housing Affordability Looks in 2022
Statistics from the National Association of Realtors (NAR) show that the Affordability Index is at 109.20 in April 2022 as compared to 154.4 in April 2021. This means that a typical household can qualify for a mortgage on a median-priced home.
When the value is equal to 100, it means a family with the median income has enough incoming funds or wages to qualify for a mortgage on a median-priced home. A value above 100 means that this same family has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment. A value below 100 means that the family’s income is not enough to qualify for a mortgage on a median-priced home.
While the Housing Affordability Index remains above 100, the downward trend since January 2022 reflects declining home affordability. Because of inflation, home prices will continue to increase as housing inventory dwindles. To combat inflation, mortgage rates will also rise, which may further drive home prices up and housing affordability down.
- For buyers: If you’re planning to buy a home, the growing home prices and low inventory may decrease your purchasing power. Planning your finances in advance will help you prepare for the market.
- For sellers: When the affordability index is high, the demand for homes increases, as most buyers can afford to mortgage a home. This is a good indicator to sell, especially with the current housing shortage. When the affordability is low, most homebuyers stay away from the market, which leads to low demand and low home sale prices.
To see how your local housing market is trending, check out Zillow. As the most visited real estate listing website in the country, Zillow provides weekly insights into real estate leading indicators. It also offers an interactive home value index tool for visualizing trends. Find the most affordable properties in your area and the real estate agents representing them.
2. Interest Rates
An interest rate (also known as “mortgage rate”) refers to how much a borrower will have to pay over time to borrow money from a lender. The interest is a percentage of the amount owed, known as the “principal.”
How Interest Rates Look in 2022
Compared to the historic low rates in 2021, interest rates in 2022 are expected to rise to combat inflation. Thirty-year fixed mortgage rates have risen from 3.4% in January to 5.2% in May 2022. Moreover, the Federal Reserve is expected to implement more Fed interest rate hikes through 2022. This is unfavorable for mortgage borrowers since higher Federal rates may lead to higher interest rates and higher monthly mortgage payments.
- For buyers: This year could still be a good time to buy a home despite the increasing mortgage rates. Based on historical data, a mortgage rate of 5% is still remarkably low compared to the rates of 6.41% in 2006, 7.81% in 1996, and 10.19% in 1986. Buying a home now could also shield you from rising rental rates and ongoing inflation through 2023. To prevent panic buying, know what you can afford and set a realistic budget.
- For sellers: With relatively low mortgage rates compared to prepandemic levels, more homebuyers can afford to buy a home, which increases demand. This is another good indicator to sell, as supply is lacking. However, the increasing mortgage rates are slowly hurting buyers’ purchasing power, which will eventually decrease the demand for new homes.
3. Median Days on the Market
Days on market (DOM) refers to the number of days a house is listed for sale—from the date the property is first listed to the date when the seller signs a sales contract. Basically, it measures how long it takes for a house to sell. Knowing the median DOM helps you determine how hot the market is in your area. Here are a few scenarios:
Fewer buyers, less competition
More buyers, more competition
Issues with property
Highly desirable property
Underpriced or priced appropriately
How Median Days on the Market Look in 2022
With low mortgage rates and inventory, houses sold faster in 2021 and 2022 compared to previous years. Based on data from Redfin, properties stayed on the market for only 16 days in May 2021 and 17 days in May 2022. This is lower than the 37 and 39 days posted in May 2019 and 2020, respectively.
In another report by NAR, 87% of listings were sold in less than a month in March 2022 compared to 83% a year ago. This means more stiff competition from buyers. Additionally, 57% of buyers made offers above the list price, up by 48% from February.
- For buyers: If you’re planning to buy, expect high asking prices, bidding wars, and rejected offers. According to NAR, a typical buyer loses two home offers before succeeding on the third try.
- For sellers: Homebuying demand will remain strong, and houses will sell quickly as serious buyers try to lock in current mortgage rates. Keep in mind that seasonality may affect the DOM. It will be helpful to be mindful of the best and worst times to sell a home.
4. Housing Inventory
The housing inventory is the number of homes listed for sale. As is the law of demand and supply, having a high inventory means less pressure to increase home prices. Having a low inventory, on the other hand, could force homeowners to increase prices to balance high demand.
How Housing Inventory Looks in 2022
The housing market has experienced problems with supply since the pandemic hit. Because of COVID restrictions, there were shortages and delays in the supply chain, leading to low housing inventory. From 1,809,882 in December 2019, the number of homes for sale continued to drop in December 2020 and 2021 to 1,399,645 and 1,161,988, respectively. By the end of 2021, a -17.1% year-on-year (Y-o-Y) growth was observed in the number of homes listed on the market.
- For buyers: If you’re looking for more choices, you should watch for an increased number of active listings on the market. As mortgage rates increase, supply could outpace demand. This can give you more room to negotiate the asking price. Some sellers might also include potential repairs to sell the house faster, which may have been less likely in a hotter market.
- For sellers: Selling when there’s short supply and high demand will most likely yield you high sales above the asking price. However, if you’re not ready to move to your next home yet, you might want to wait until you’ve secured a new home (though this may lead to missed opportunities).
5. Time of Year
Seasonality in real estate relates to a specific time of year, and its impact varies from location to location. For example, housing markets in the Midwest and Northeast are hotter during the peak season compared to other regions in the United States.
Historically, the peak season is spring to early summer because it yields the highest demand and most number of houses sold. The weather, school year, and holidays usually affect seasonality. That’s why the months between April and August are busier than any other month of the year. November to February, on the other hand, tend to experience the lowest housing demand due to the holiday season.
Due to decreasing inventory and low mortgage rates, there have been shifts in these seasonal trends. From four months of supply posted in January 2019, houses are sold faster since 2020, with months of supply remaining at one.
How Time of Year Looks in 2022
From a historical standpoint, the spring months are the busiest for homebuyers. While this scenario still rings true in 2022, Redfin reported that homebuyer competition started to decline in March due to high mortgage rates and home prices.
This indicates a cooling market as inflation affects several real estate indicators. While the bidding war rate in March 2022 is higher at 63.4% compared to 59.7% in March 2021, homebuying competition began to decrease in April 2022 at 60.7%.
- For buyers: The decline in demand is good news for homebuyers who have planned their finances in advance. As more individuals shy away from the market, you might encounter less competition and have more wiggle room for negotiations. For the best deals, check out the best and worst times to buy a house.
- For sellers: With the housing shortage, there’s a high demand for new homes all year round. But for more premium home prices, selling during the spring season will earn you higher proceeds from your property.
6. Market Type
This refers to whether the market is a buyer’s or seller’s market. A buyer’s market favors buyers as there is an abundance of active listings to choose from. On the other hand, a seller’s market is profitable for sellers as there are more buyers compared to the number of homes available for sale, leading to higher demand and prices.
How Market Type Looks in 2022
The year 2022 is predominantly a seller’s market since there are still fewer homes available than buyers looking for properties. This is due to slowed construction of all housing types over time after the housing crisis in 2008 coupled with supply chain issues during the pandemic. Furthermore, municipal zoning laws, labor shortages, and high lumber prices have delayed construction and restricted more properties from opening.
In May 2022, the inventory grew by 8% over the past year, according to data from Realtor.com. Additionally, new home construction soared by 22% in February 2022 from last year as homebuilders are matching the high demand. Despite this increase in active listings and new starts, prices remain high at a median price of $430,695, which is a 14.7% growth over the past year.
- For buyers: As new home starts to increase, demand may start to cool down in the succeeding months because of rising mortgage rates. If you’re planning to buy in a seller’s market, get pre-approved for a loan ahead of time and make an offer quickly. Since a seller’s market is not an ideal time to buy a home, keep in mind that you’re at a disadvantage with more buyers willing to make an offer. Sellers also often prefer buyers who pay with cash, so making an all-cash offer will put you ahead of your competitors. However, don’t get too caught up in the bidding war, as this leads to offering more money than the actual home value. Being patient and waiting for the market to cool down will help you get the best deals.
- For sellers: Despite the growing inventory, the market will still continue to favor sellers due to the nationwide housing shortage. To get better offers, prepare the home for sale in advance, limit showings to encourage buyer competition, and lower the sales price to give buyers enough wiggle room for bidding over the listing price.
7. Rental Market Trends
The rental market can impact home sales. Low rental inventory coupled with high rental demand cause rents to soar, which could snowball into home prices, interest rates, and inflation. Long-time renters may decide to purchase a home as they consider the costs of homeownership more affordable than the skyrocketing rents. That is, paying rent could be more costly than a mortgage payment.
What the Rental Market Looks Like in 2022
Rental rates are increasing in 2022 as demand continues to outpace supply. According to CoreLogic, single-family rents have increased by 12.6% year over year in January 2022. Some analysts predicted more affordable home prices this year than rents due to historically low mortgage rates. Currently, buying a median-priced home is more affordable than renting a three-bedroom property in 58% of the states. However, as interest rates begin to increase, home prices are actually rising faster than rents.
Nevertheless, all real estate is local. If you’re living in rural and suburban areas, renting can be more affordable than purchasing a home. If you live in big cities, renting might be the cheaper option.
Below are the top 10 cities with the biggest increase and decrease on average one-bedroom rental prices:
Cities With Highest Increase
Cities With Biggest Decrease
Long Beach, CA (+52.5%)
Huntsville, AL (-16.6%)
Amarillo, TX (+51.8%)
Kansas City, MO (-15.8%)
Austin, TX (+46.7%)
Cleveland, OH (-14.7%)
Jersey City, NJ (+46%)
Anaheim, CA (-12%)
Fremont, CA (+43.7%)
Indianapolis, IN (-7.7%)
Oklahoma City, OK (+42.2%)
Madison, WI (-7.7%)
Nashville, TN (+42%)
Charlotte, NC (-7.2%)
Orlando, FL (+38.2%)
Durham, NC (-6.2%)
Cincinnati, OH (+37.8%)
Grand Rapids, MI (-6%)
Portland, OR (+37.2%)
Norfolk, VA (-5.1%)
If you’re a renter, you may not be able to compete with more seasoned homebuyers as the market peaks in 2022, leaving you with higher prices and rental rates. In such a case, it’s better to stay put in your rental unit as property owners will be less likely to increase renewal rents than new rents. Furthermore, rent may slow down as new home construction increases in the coming months.
- For buyers: Rents could increase primarily due to low inventory. This could motivate sellers to increase home prices to match increasing demand. If you’re buying a home when rental rates are high, you must brace yourself for more bidding wars, especially from first-time homebuyers.
- For sellers: Demand may stream from seasoned buyers, first-time buyers, and investors as rental rates increase. Investors, in particular, are buying houses so they can turn them into rental properties. If you’re not ready to sell your home yet, you can lease it to take advantage of the high demand.
Aside from these real estate market indicators, other market conditions give real estate agents, investors, and clients data-based insights when searching for a house, selling a home, listing or searching for a rental home, or representing clients in this market. To have the most accurate look at the current housing market, check out the 20 most crucial real estate statistics in 2022.
Will 2023 Be Better or Worse?
As homebuyers lock in current interest rates, competition for homes will continue to intensify in 2022 before slowing down in 2023. Mortgage rates will also continue to rise next year, which could hit 6% based on the Federal Open Market Committee forecast.
In a revised forecast, Zillow estimates a 14.9% increase in home prices between March 2022 and March 2023. Mortgage Bankers Association predicts a 4.8% increase over the same period, while Federal National Mortgage Association anticipates a home price growth of 4.2% in 2023.
On the other hand, CoreLogic expects home prices to decrease to a 5% growth rate next year. Analysts anticipate the housing inventory to recover faster with more new housing starts on the way. This could decrease home prices and increase sales volume in 2023, ergo the downward forecast.
These forecasts can still change. Remember that in 2020, both CoreLogic and Zillow expected home prices to decrease in the spring of 2021, which was not materialized last year.
There are several housing market indicators that can affect the best time to buy or sell a home, including local housing affordability, interest rates, median days on market, housing inventory, time of year, market type, and rental market trends. While 2022 is clearly a seller’s market owing to low supply and high demand, trends may slowly shift in 2023 as housing inventory improves and mortgage rates continue to rise.