Real estate in 2022: A year of action-movie intensity
At this time last year, no one predicted that the market would take such a wild ride.
Key points:
- Forecasters expected small interest rate increases and a bit of slowing, but not the dramatic highs and lows we came to see in 2022.
- After a hot start, the market cooled quickly, and layoffs, executive shakeups, and big blows to mortgage and iBuying companies followed.
- Declining interest rates in Q4 give rise to optimism, but the future remains hazy as the year ends on a bit of a cliffhanger.
It's the end of 2022, a year that probably felt like a three-hour "Fast & Furious" movie, leaving everyone in the real estate business exhausted and maybe a little queasy.
The setting back in December 2021 was similar to the opening scenes of many an action flick: There was some inkling that 2022 could be a wild ride, but no one knew really what to expect.
At the time, the market was superheated, sellers could expect multiple offers over asking, and buyers enjoyed ultra-low interest rates.
Many real estate forecasters and economists correctly predicted some of the 2022 housing market twists, but not the pace of the action. Most expected interest rates to rise, but imagined that rates would settle in the 3.5-4.5% range. They thought demand would cool slightly due to high prices and supply-chain issues — but didn't foresee a scenario where the market would come to a screeching halt as 30-year mortgage rates eventually rose above 7%.
As for the big miss on mortgage interest rate predictions, economists deserve a little slack. Asserting that mortgage interest rates would more than double in a year would have been quite a bold prediction, given that it was something that had never happened before.
Like many action-packed movies, it's helpful to review some of the highlights in order to figure out if the ending makes sense. Here's a look at how the year unfolded:
Act one: In the fast lane, but signs of trouble
The market continued to overheat in the first quarter, with the National Association of Realtors reporting 70% of markets had double-digit price increases from the year before. Nationally, home prices had increased 15.7% year-over-year.
This seemed to set off warning alarms, and interest rates began to rise at what seemed like a fast clip, from around 3.2% in January to 4.67% at the end of March.
"I expect more pullback in housing demand as mortgage rates take a heavier toll on affordability," NAR Chief economist Lawrence Yun said at the time. "There are no indications that rates will ease anytime soon."
Other signs of danger ahead included a sinking stock market, which made investors nervous. Young companies looking for funding were left high and dry, including fintech company Knock, which laid off half its workforce after funding fell through. The mortgage lender Better.com cut about 3,000 employees in March after laying off about 900 people in December. These workforce cuts were just a taste of what was to come.
Global events would also influence the economy and thus the real estate market. Russia's invasion of Ukraine in February led to higher inflation, seen most vividly with gas prices. That, in turn, led to interest and mortgage rates sharply rising later in the year.
Act two: Time to tap the brakes?
With mortgage interest rates rising from 4.67% at the end of March to 5.7% at the end of June, it was a pretty clear signal this might be the last chance to lock in some low interest rates, which made for another busy spring season.
The median price for homes sold in the second quarter hit $413,500, the first time the national median price rose above $400,000, according to NAR.
Even with the frenzy, real estate and financing companies began picking up the pace with layoffs. Keller Mortgage, Redfin, Zillow and Tomo were among those reducing workforces in the second quarter.
Act three: Crash! (but airbags soften the blow)
With mortgage rates closing in on 7% by the end of September, the party was over, and demand had all but dried up.
While sales waned in the third quarter, price growth slowed, but didn't plummet. Sellers had little incentive to trade in low interest rates for much higher ones, which restrained inventory and prevented prices from dropping to affordable levels for potential buyers.
The slowdown also meant more layoffs, with Anywhere, Keller Williams, Compass and Realtor.com among the companies who reduced their workforces in the third quarter.
Act four: Picking up the pieces
The end of the traditional homebuying season became a time to pause and make some tough decisions ahead of any big finish.
Many sellers took homes off the market, presumably waiting for conditions to improve. Price reductions and a steadily dropping mortgage rate provided some optimism for potential buyers, but mortgage loan application data indicated they weren't persuaded to act.
Meanwhile, the layoffs continued, with iBuying taking an especially big hit. Two back-to-back blows to iBuying came in November. In the span of a week, leading iBuyer Opendoor made significant cuts to its workforce, laying off 550 people, and Redfin announced it was ending its RedfinNow program — all told, the company laid off 27% of its workforce in 2022.
The end of the year also marked leadership changes at key real estate companies. Ryan Gorman left his CEO position at Coldwell Banker, with Sue Yannaccone taking on a bigger leadership role overseeing Anywhere's core brokerages. Opendoor founder Eric Wu stepped down as CEO but will continue to work for the company as Carrie Wheeler takes over the top role.
2022 was a year with all the excitement, anxiety and drama of blockbuster action movie — but without an obvious hero. We'll have to wait for the sequel in 2023 to see who emerges victorious.