These 8 Trends Will Dominate Real Estate in 2022. Here’s How to Make Sense of Them

The 2021 real estate market was like a high-speed rollercoaster ride for buyers — one full of twists, turns, and upside-down loops. While the wild ride isn’t over just yet (sellers still have an advantage going into 2022), the market could ease up a little on first-time buyers, according to real estate experts. To help you better navigate buying a home in the year ahead, we’ve pinned down eight trends that analysts expect will shape the real estate market. And with those trends in mind, real estate agents and mortgage experts relayed their best tips for first-time buyers.  

From the continued demand for more living space to first-time buyers snapping up vacation rentals, here are the trends that will shape the 2022 homebuying market.

Mental health spaces and features will abound.

The last two years have been a doozy, and that’s putting it lightly. In 2022, thoughtful wellness designs will be prominent in homes, and some of them will come at a premium, like spa-inspired bathrooms and meditation rooms, according to Zillow. Natural light will be a priority, especially in home offices and common spaces, according to the real estate site. Expect to see homes staged with indoor plants, too.

The numbers: A freestanding bathtub can lead to a 2.6 percent premium on a home’s sale price, according to Zillow. 

The advice for homebuyers: Want to let the light in on your next home? “Typically, a south-facing home has better natural light,” says Cindy Chen, a licensed associate real estate broker with Compass in New York City. “But it also depends on when you will be in the home most often and wanting light. Eastern exposures will have more morning light, while homes with western exposures will work well in the afternoon.”

Exposures are fixed features and harder to change, she says, but keeping windows clear of clutter will give apartments more natural light. If the natural light is still not sufficient, you can hang mirrors that reflect light into the apartment or only use sheer window treatments without heavy curtains, Chen says. Otherwise, if the building allows renovations, replacing existing windows with larger ones will certainly give your place more light. 

Housing affordability issues will be a mixed bag.

In 2021, historically low mortgage rates that, at times, dipped below 3 percent, helped offset the higher listing prices. In 2022, experts predict both home prices and mortgage rates will go up. So too will income, continuing the “good news/bad news” dynamic.

The numbers: Realtor.com expects that mortgage rates will hover at an average of 3.3 percent throughout 2022, inching up to 3.6 percent by the end of year. Meanwhile, existing home sales prices will continue to increase, rising 2.9 percent in 2022. The silver lining? A bettering economy (by the usual indicators, at least) should be propelling income growth of 3.3 percent by the end of the year, according to Realtor.com.

The advice for homebuyers: Do your research to find lenders that have a good combination of low rates and low fees, then apply for mortgage pre-approval — not just a pre-qualification — from at least three of them, recommends Kate Wood, home and mortgage expert at NerdWallet.

“Each lender will give you an offer in writing that shows you the size of a home loan you could potentially get, an interest rate that’s customized to you and a breakdown of their fees,” she says. “Taking the time to comparison shop could save you hundreds of dollars each year in interest, which would really pile up over the life of the loan.”

The outlook for buyers may improve, but it remains a seller’s market.

Inventory will remain squeezed and 2022 will continue to be a seller’s market, according to experts. But Realtor.com analysts predict the market will rebound from 2021 lows, with inventory growing 0.3 percent on average in 2022. 

The numbers: A good way to take a pulse of the market is the number of days a home is on the market. Right now, homes are on the market for a median of 49 days, which is less than a typical winter month, when the market time is 85 to 100 days, according to HousingWire. 

The advice for homebuyers: Give yourself some wiggle room on what you can afford so that, if need be, you could go over asking for a home you love. Another tip? “Look at homes that have been on the market for more than 21 days,” says Marilyn Emery, a real estate agent with RLAH Real Estate in Montgomery County, Maryland, and Washington, D.C. “Many of these homes started off overpriced but have lowered their price. Buyers often think there must be something wrong with these homes, so they don’t even bother to go and see them. However, there are many hidden gems out there if you just take the time to look.”

First-time buyers are scooping up ‘second homes’ before primary residences.

For a wildcard trend, Zillow predicts that Gen Z and Millennial buyers, who are savvy watchers of the market, will be interested in purchasing what would traditionally be considered “second homes” before investing in a primary residence. The reason? Remote work means many in these generations are no longer tethered to big cities, and they’re looking for more affordable destinations to live in. Still, this cohort of first-time buyers might not be entirely ready to make a full-time move. Owning a part-time vacation home or an investment property could potentially help them build equity during the interim. 

The numbers: The average long-distance mover relocated to a ZIP code with home values nearly $27,000 lower than where they came from last year, according to a 2021 reshuffling report from Zillow. 

The advice for homebuyers: If you buy a rental property before buying a primary residence and you’re applying for financing, you’ll likely need to bring a sizable down payment to the table. Most investment properties require 20 to 25 percent down to get a home loan as opposed to the 3.5 percent down that a first-time homebuyer could qualify for through the FHA, explains Jerimiah Taylor, a licensed broker and vice president of real estate and mortgage services at real estate tech firm OJO Labs. 

Buying a starter home may be more affordable than renting in some markets.

It’s a bit of a catch-22: Because home prices are so high, there’s a heightened desire to rent as would-be buyers wait until the market cools. But now the increased demand for rental units (especially ones that are big on square footage) is driving up rent around the country, according to Realtor.com.

The numbers: Buying a “starter” home is more affordable than renting in 24 of the 50 largest metro areas. In these markets, the monthly cost to buy was 15.5 percent ($216) lower than renting, on average, according to Realtor.com. Among the markets where it looks to be more affordable to buy than rent are: Birmingham, Alabama; St. Louis, Missouri; Pittsburgh, Pennsylvania; Orlando, Florida; and Cleveland, Ohio. In tech cities like Austin, Texas; San Jose, California; and San Francisco, California, it’s still more affordable to rent than buy.

The advice for homebuyers: If you’re considering whether to transition from renter to homeowner, keep in mind that expenses will likely be higher when you buy. “A renter is typically not paying to cut the grass, shovel the snow, or dispose of the garbage,” says Jorge Rivera, regional vice president of sales for William Raveis Mortgage. “They are also typically limited in [paying] repair costs. Creating a reserve fund with weekly or monthly deposits is a great way to prepare for big ticket repair items [as a buyer].”

Demand for more space (inside and outside) will continue.

Wanting more space amid COVID, people traded dense urban areas for sprawling suburbs. The ‘burbs continue to remain in high demand, and new construction homes are getting bigger.

The numbers: The number of Realtor.com viewers of suburban home listings has gone up 42.1 percent since the onset of COVID. Single-family home sizes are also trending bigger. According to Census data and an analysis from the National Association of Home Builders, the average square footage for new single-family homes increased by 6.2 percent, to 2,541 square feet, since Great Recession lows.

The advice for homebuyers: Get in touch with homebuilders in your area to see what projects they have coming up, recommends F. Ron Smith, a Compass real estate agent with Smith & Berg Partners in Brentwood, California. New construction homes, he says, typically have more light and lots more indoor-outdoor flow than older homes.

Buyers are making compromises.

Because inventory remains low in this super competitive pandemic housing market, those “dream homes” that tick all the boxes of your priorities (and wants, too) are elusive. 

The numbers: Eighty-one percent of buyers have had to make one or more compromises when buying in this sizzling hot market, according to Zillow. Nearly three quarters of homeowners are considering a home improvement in the next year, per Zillow, with renovating a bathroom (52 percent), kitchen (42 percent), or adding or improving a home office space (31 percent) as the top projects.

The advice for homebuyers: If you’re facing some indecision when it comes to whether or not to make an offer, Realtors love the 80 percent rule, says Megan Gallagher, Realtor with the DEN Property Group in Austin, Texas. It means if a home meets 80 percent of your criteria, you should make a bid. “We suggest you list out 10 important features, and if they’re all of equal priority then you can use the 80/20 rule,” she says. “If you have some higher priority items, then you should really be focused on those and know that everything else can be a compromise.”

Homebuying will cost time, too. 

Not only is the homebuying process a financial investment, but it’s also something you’ve got to budget the time for — especially in this fast-paced market. In fact, the average first-time homebuyer tours 15 homes in person or virtually, according to an Opendoor report. But 33 percent toured 20 or more homes. 

The numbers: According to Opendoor, 79 percent of first-time homebuyers who missed work during the homebuying process had to take off an average of 14 hours for their search. 

The advice for homebuyers: Sometimes listing photos can be deceiving, says real estate agent Yawar Charlie with the Aaron Kirman Group at Compass in Beverly Hills, California.  

“You have to truly see things in person to appreciate them and see if you connect with them,” he says. “My approach is if the neighborhood is right for you, go see the house. Assess for yourself whether it’s the right fit for you in person.”