The past year may have been a wild ride for potential homebuyers, but reports indicate that the housing market in 2022 could be even more competitive.

New listings are currently at a record low, according to Redfin and Zillow. In fact, at the end of 2021, there were 19.5% fewer homes listed than at the end of 2020, and 40.5% fewer homes available for sale than at the end of 2019, according to Zillow’s December 2021 Market Report.

That’s driving up prices even higher than last year: The median home sale price was up 14% during the four-week period ending January 16 compared to a year ago, reaching $358,500, per Redfin.

Last year, homes were snapped up hours after hitting the market, often for well over asking. With the record-low inventory, that’s expected to continue this year, at least through the spring season, says Jeff Tucker, senior economist at Zillow.

“It’s extraordinary,” says Tucker of the prices and demands.

There are a number of reasons for the record-low supply, including months of low interest rates and labor and material shortages that limit the ability for new construction. Plus, more people who already own homes are taking advantage of the low rates to buy a second home without selling their first; instead, they’re opting to cash in on the low interest rates and become landlords, says Tucker.

But with mortgage rates starting to rise — the 30-year fixed rate surpassed 3.5% earlier this month for the first time since spring 2020 — demand may begin to cool off slightly. That’s particularly true for buyers who are making investments, rather than looking for a place to actually live.

While less competition overall could theoretically be good for first-time buyers, the steep price increases and rising mortgage rates will likely keep many on the sidelines. Even a jump from a 3% interest rate to 3.5% increases a monthly mortgage payment by 7%, says Tucker.

“Rising interest rates shrink budgets,” he says. “For first-time buyers, this is a very difficult market for them.”

Though construction is starting to pick up, which would help supply, it still needs to make up for decades of underbuilding across the U.S. to satisfy demand.

All of this means sellers will continue to have the upper hand for the foreseeable future, says Tucker.

“Some buyers will be knocked out of the running this spring by high mortgage rates,” he says.

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