Supply of Homes for Sale to Grow 15%, Sales to Drop 6.7%

Realtor.com is now projecting that the US inventory of existing home for sale will surge by 15% this year, revising its original 2022 forecast that supply would only grow by 0.3%.

Realtor also significantly downgraded its forecast of existing home sales this year, projecting that sales will drop 6.7% in 2022—a swing of nearly 12 points from its original forecast that home sales would go up by 6.6%.

However—spoiler alert: here comes some whiplash—Realtor actually raised its forecast for the median price appreciation for existing home sales: it now projects median price increases of 6.6%, more than double its original projection of a 2.9% increase in 2022.

Realtor also projects that mortgage rates will average 5% throughout the year and end the year at 5.5%, up from its previous forecast of 3.3% and 3.6%, respectively.

Realtor’s explanation for its forecast revisions echoed US Treasury Secretary Janet Yellen’s recent admission that she didn’t see runaway inflation coming until it was rounding the corner and getting ready to run over the economy.

“The change in financial conditions is the most dramatic driver of change in our revised outlook. As we finalized our results in late 2021, the consensus on inflation being a largely transitory phenomenon that could be tamed with a garden-variety tightening cycle was just starting to crack,” Realtor said, in a release announcing its revised forecast.

“In December 2021, our call of 3.6% mortgage rates in 2022 was on the higher end of expectations. Now, however, mortgage rates have already exceeded 5% for over a month. This shift is reverberating through the housing market and consumer decisions,” Realtor noted.  

Realtor said the unexpected surge in the inventory of existing homes for sale is due to a combination of more sellers entering the market as home sales begin to decline.

“Home sales (will) slow, shifting our original 2022 growth expectations to a decline of 6.7%. While we now forecast a notable step down from 2021 home sales on par with these projections would mean that 2022 sales are the 2nd highest tally since 2007, trailing only 2021,” Realtor said.

Regarding home prices, the new forecast signaled that the inflationary spiral will keep lifting prices, albeit at a slower pace than the record increases recorded in the past year.

“Going forward, home price growth cools, but it has remained hotter for longer than originally anticipated, leading to an upwardly revised projection for price growth in 2022,” Realtor said.

Realtor lowered its projection of US GDP growth in 2022 from 4.3% to 3.2% in the revised forecast, adding the caveat that several factors are feeding into “general uncertainty”—including whether the Federal Reserve, which may put a 75 bps rate hike back on the table at its meeting later this week, can deliver a “soft landing” for the US economy.

“Risks to this projection remain,” Realtor said.