As 2021 comes to a close, we wanted to dive further into the rapid rise of the real estate market this past year. In addition to a nationwide review, we focused on the 50 largest cities in the U.S. and ranked them by year-over-year price growth.
Here are our key takeaways:
- Nationwide home prices went up 14% in 2021. We expect this trend to continue through 2022, with values estimated to grow a further 6.3% next year.
- Austin, TX was the hottest housing market in 2021, with a 27.7% yearly rise in asking sales prices.
- Philadelphia, PA saw prices drop 2.8% year-over-year.
- In 2022, we predict demand for larger homes will continue as the COVID-19 pandemic remains a threat.
- Interest rates are on the rise. By the end of 2022, 30-year fixed will likely reach 3.7%.
The U.S. Housing Market in 2021
2021 was an incredible year for residential real estate prices, with several factors contributing to increased demand.
First, the cost of financing was drastically reduced, thanks to historically low interest rates. This not only boosted home purchases, but made refinancing more attractive to existing homeowners.
Second, pandemic-driven remote work led more families to migrate from the city to the suburbs (or other states) in search for more living space. This drove up prices in many locations such as Austin, TX, Mesa, AZ, and Colorado Springs, CO.
Meanwhile, inflation has been at its highest since 1982. Supply chain issues continue to haunt developers, making building homes more difficult and costly. Lumber prices skyrocketed, currently sitting at around $1,100 per thousand board feet, or 41% higher than a month ago.
In Austin, TX, where an average of 180 new residents moved into the city every day, the median asking price skyrocketed 27.7% in 2021. Meanwhile, multiple cities in Arizona saw strong growth as more residents migrated from the less affordable cities in California. Mesa experienced an annual price increase of 26.1%, and the median asking price in Phoenix jumped close to 25% year-over-year.
Where Home Prices Increased: Top 5 Cities
Where Home Prices Decreased: Bottom 5 Cities
2022 Housing Market Predictions
As the Federal Reserve shifts its policy and starts raising rates in 2022, we expect demand for housing to plateau. The market will likely cool off but remain strong until supply catches up.
Demand for Larger Homes Will Continue
As the pandemic continues to rage on with the Omicron variant, we expect the demand for larger homes will continue in secondary and tertiary markets. For example, searches for two and three-bedroom homes are projected to outpace studio and one-bedroom properties.
Inflation Will Drive Up HOA Dues
Condo owners should be mindful of the rising cost of HOA dues. Labor has gotten more expensive in the past year, and with inflation continuing to be a threat, we expect to see a considerable rise in HOA dues.
Home Values Are Projected to Increase Further in 2022
RealtyHop’s listing data show that nationwide home prices increased 14% in 2021, with this upward trend likely to continue next year. While rising interest rates can dampen housing demand, the impact might be minimal, as current rates are still favorable for prospective homebuyers.
Interest Rates Are Estimated to Reach 3.7% by Q4 2022
Last week, the Federal Reserve signaled that it plans to raise interest rates starting March 2022, ending the rock-bottom interest rate era. The rate will likely go up 75 basis points by the end of 2022. We estimate that 30-year fixed mortgage rates will reach 3.7%, and 5/1 ARM will become a more attractive option, as the upward trend is projected to continue through 2024.
Housing Markets in these Cities Will Remain Strong
The median asking price in Phoenix rose 25% in 2021, making it one of the hottest housing markets in the U.S. We expect this trend to continue into 2022, as large corporate investors and iBuyers such as Opendoor continue to snap up homes in the area at a rapid pace.
While Dallas experienced only moderate growth in 2021, the city is predicted to be one of the hottest markets in 2022. Median asking prices increased 5.46% in 2021, indicating that there’s still room for growth. In addition, as nearby markets such as Austin reach new peaks, Dallas could be leading the growth in the coming year.
Home values grew 8.4% this year in Columbus, OH, with this trend projected to continue into 2022. According to the U.S. Census, the population in Columbus grew 15% between 2010 and 2020, making it one of the fastest growing cities in the Midwest. We expect prices in the city to rise a further 5-6% in the new year.
Top 50 U.S. Cities, Ranked by Growth