December 14, 2021
Purchasing property in 2021 was a frustrating affair for Philly homebuyers.
Historically low interest rates inspired a wave of home buying in the City of Brotherly Love. But the love soon waned as inventory dwindled, leading to fast-paced bidding wars and skyrocketing home prices as a result.
Some local residents decided to put the brakes on their search, hoping for a return to normalcy with the new year. Luckily, there are signs of relief on the horizon. More homes are expected to hit the market, bidding wars are likely to calm, and several factors will slow the pace of frustrating home price increases.
To help aspiring homeowners navigate the year ahead, the team at Prevu Real Estate compiled the top trends to watch for in 2022.
One of the defining features of the past two years was low mortgage rates.
In 2020, faced with the potential economic impacts of COVID-19, the Federal Reserve lowered the cost of borrowing to spur the economy and has been buying up mortgage-backed securities (MBS) to support the housing market. Americans utilized the resulting attractive mortgage rates to purchase homes in record numbers.
The economy bounced back from the pandemic’s initial disruptions, and it led to real estate bidding war conditions that characterized the majority of 2021. But now, faced with rising inflation, the Federal Reserve is tapering back MBS purchases and is widely expected to raise interest rates at some point in 2022.
Mortgage rates will increase as a result.
An increase in the cost of borrowing will drive some homebuyers out of the market. However, that is good news for more financially conservative buyers who couldn’t stomach paying huge amounts over asking price in search of a deal.
As the pool of competing buyers dwindles, the frequency of bidding wars will dissipate as well. Less bidding wars will result in a slower pace of price increases. Buyers in a tamer market will no longer have to keep increasing their offers just to edge out the competition.
In 2021, Philadelphia homebuyers felt a squeeze from rapidly increasing home prices and exorbitant pricing around construction materials. These factors pushed homebuyers to break norms and look for opportunities to save.
Luckily, many buyers discovered commission rebates and used them to save thousands of dollars at closing. Typically, a buyer's agent receives 3% of the 6% broker fee paid once a transaction closes. But modern brokerages like Prevu Real Estate offer buyers a portion of their commission in the form of a cash back rebate.
That money goes a long way for buyers, as it can help with furnishing their new abode or restore depleted funds after a costly down payment and other closing costs.
After a decade of rising prices, homes in Philadelphia sold like they were going out of style over the past year.
But considering the below-average inventory of homes for sale in Philly, there has been heavy competition in the real estate market. The lack of housing inventory even pushed handy homebuyers to purchase fixer-uppers with the intent of remodeling older rowhouses throughout Philly.
Developers certainly took notice of the rising prices over the past decade and have benefitted from the surge of activity this year.
For example, Toll Brothers is building a new 18-story mixed-use property just minutes away from City Hall, the Broad & Noble. And on the waterfront of the Delaware River, just north of Fishtown, a large townhome development called Northbank is under construction. These dwellings will sit on a 30-acre plot and aim to provide stellar views of the city and Ben Franklin Bridge.
As such, more new construction and recently renovated houses should continue to hit the market in 2022.