As 2022 comes to an end, investors might begin to make resolutions and predictions for the upcoming new year. And one area of investing that’s drawing much speculation and discussion is the U.S. residential housing and mortgage market. 

Looming over optimistic predictions of the U.S. economic revival is news that home sales fell for the ninth straight month in October 2022. Such decline means the sales of previously owned homes were 31% lower year over year. This is the slowest pace of sales since December 2011, with the exception of a very brief drop at the beginning of the COVID-19 pandemic. 

What feels even more shocking is that supply remains very low. By the end of October 2022, there were roughly 1.2 million homes for sale in the U.S., which averages out to a 3.3-month supply at this current pace. A 3.3-month long supply is dangerously low — a balanced market is expected to have a six-month supply. It seems like homeowners are sitting on their hands and homebuyers have been scared off by high mortgage rates. 

Volatility in mortgage rates makes homeownership daunting, especially for first-time homebuyers. Recent mortgage rate swings are costing homeowners hundreds of dollars more in monthly dues. For example, a 30-year mortgage on a $500,000 home with a 5.5% interest rate and normal repayment plan has monthly payments of $2,838. That same mortgage with a 6% interest rate has monthly payments of $2,997. At a 7% interest rate, payments jump to $3,326. It just goes to show that small interest rate increases make a huge difference over time. 

While the Federal Reserve has begun to slow rate hikes, it’s still increasing rates — and the target terminal rate just climbed again. First-time homebuyers usually make up about 40% of home purchases nationwide, but in 2022 they contributed to only 28% of sales. And as first-time homebuyers have pulled back, investors have as well. Inflation and losses in the stock market are likely causing investors to reconsider investments with little liquidity. In many ways, a stabilizing economy holds the key to revived home sales. 

There might be some hope moving forward, however, as 64% of homes sold in October 2022 were on the market for less than a month. While time on the market can vary greatly, this short time frame suggests that there is still a strong demand for homes if they’re priced well. 

The Hottest Housing Markets of 2022

Homebuyers in 2022 set their sights on more affordable areas — particularly in New England. The hottest zip codes of 2022 included… 

1. Brighton, New York (14618)
2. Nashua, New Hampshire (03062)
3. Worthington, Ohio (43085)
4. Derry, New Hampshire (03038)
5. Windham, Maine (04062)
6. Worthington, Ohio (18017)
7. Johnson City, Tennessee (37604)
8. Hooksett, New Hampshire (03106)
9. North Attleboro, Massachusetts (02760)
10. Auburn, Maine (04210).

Evidently homebuyers honed in on relatively affordable areas with short commutes into big cities rather than on extreme luxury or expensive city living. The increased adoption of remote work also allowed homebuyers to explore new living environments farther from city centers. Interestingly, across the top 10 zip codes listed, 13.4% of homes were built before 1939 compared to just 11.6% nationwide.

If we can slowly move back toward a more stable economy with more consistent interest rates, home sales are likely to increase back to standard levels. First-time buyers and seasoned investors must remain patient as the pendulum swings back again.

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