In the midst of an economic downturn and global pandemic, the 2021 housing market took buyers and sellers across the nation on a rollercoaster ride. Home prices surged rapidly leading the way for fierce bidding wars, in many cases between dozens of buyers simultaneously. Much of this was a result of low inventory levels which dipped even lower as buyers scooped up properties that were sold significantly over the asking price.

This market climate left many home buyers frustrated after making multiple unsuccessful bids. While most experts don’t expect a repeat of 2021, there are some factors that indicate that the market will remain strong through 2022 and beyond. Whether you are a new home buyer seeking to purchase your first home this year or a returning buyer looking to try again, here is a comprehensive outlook of what Long Island home buyers can expect in 2022.

Home Buyers Should Expect Higher Interest Rates

Since the 1980s, 30-year fixed mortgage rates have been in decline. This is a great thing for buyers looking to minimize the additional expense that high-interest rates add to their monthly mortgage payment (and ultimately the lifetime cost of their mortgage). As the pandemic worsened, the Federal Reserve worked to keep pressure off businesses and consumers by creating policies to keep interest rates low. These policies were effective with 30-year fixed mortgage rates reaching an all-time low of 2.65% in January of 2021. This was short-lived as interest rates quickly climbed back up above 3% by April.

Looking forward into 2022, many economists believe that interest rates will continue to their upward trend. With optimism that the COVID-19 pandemic will subside in the near future, the Federal Reserve could begin to ease up on interest rates pressures soon. Economists at the National Association of Realtors predict that rates could reach as high as 3.7% in 2022.

Record-Low Inventory Levels Are Here to Stay

One of the key factors that led to the aggressive 2021 market was the extremely low inventory levels. Some homeowners were cautious to list their homes with the uncertainty of the economy and job markets. Others chose to sit tight to avoid not being able to find another home for a reasonable price without having the downsize.

To better understand how severely the inventory levels have changed, we can examine historical data. For example, in November of 2011 there were over 21,000 homes listed for sale in Nassau and Suffolk Counties. Flash forward a decade and the number of listed homes in the same month (November of 2021) was under 5,400 (a 75% decrease from 2011 levels). This has been a significant shift with Long Island experiencing the lowest inventory levels seen in several decades.

Winter home sales are traditionally slow with more homes expected to hit the market as Spring brings warmer weather. However, buyers should not expect to see major increases in inventory. According to Realtor.com, inventories will likely only increase by a fraction of a percent (projected increase of 0.3%) in 2022.

Higher Prices Are Expected to Continue

Without relief from low inventory levels, buyers can expect to see home prices continue to increase throughout the next year. While the Long Island market did see a slight decrease in home prices during the second half of 2021, they remain above the price points seen prior to the peak in 2021. According to Long Island Business News, homes in Nassau remain about 10% higher than they were a year ago. Similar pricing levels are being seen in the surrounding areas such as Suffolk County and Queens. Some market pockets like Smithtown have seen even higher increases (coming in at an 11.4% increase over the prior year).

With these increased prices, some buyers could be tempted to hold out for a market correction. Unfortunately, this is not likely to happen any time soon. While prices are not expected to surge similar to 2021, the National Association of Realtors has projected a moderate home price increase of 5.7% in 2022. Buyers who are looking at new construction aren’t expected to find any savings with the US Census Bureau reporting a 19% increase in new home prices.

In addition to rising home prices, the hot real estate market is also negatively affecting renters with Nassau-Suffolk rental rates increasing nearly 5% according to Fair Market Rent. Buyers who decide to wait for the perfect moment to jump into the market may end up paying significantly more in the long run as prices continue to increase. For this reason, real estate professionals are urging buyers to stay in the market to secure the lowest home prices and interest rates.

Pressures and Competition from Cash Buyers

When it comes to purchasing property, cash is king. Paying cash brings the benefits of a faster closing, no interest rates, and lower closing costs. The 2021 market brought an unprecedented number of cash buyers looking for a competitive advantage to sway sellers into selecting their offers. In 2020, only 15 percent of buyers offered to pay all cash. In 2021, this number jumped up to a record high of 36 percent.

Paying all cash is not feasible for the majority of home buyers. This left many bidders unable to compete with cash offers. According to one survey, 60% of first-time home buyers had to make an average of 10 offers before finally securing a property. This has driven many buyers, especially first-time home buyers, away from the real estate market. Unfortunately, the high volume of cash buyers is expected to continue to influence the market in 2022. The good news is that there are many strategies that a licensed real estate agent can recommend to improve your chances against cash offers.

Partner with the Experts in Long Island Real Estate

With all of the challenges that buyers have to face in the current market, many might be discouraged from pursuing their dreams of homeownership. Fortunately, you don’t have to go it alone. The Lenard Team is here to partner with you and guide you every step of the way. Servicing the Suffolk, Nassau, and Queens, New York areas, our team of licensed real estate professionals will look out for your best interests as you search for the home your family deserves.