Analysts Expect a Home Price Slowdown in 2022

Key highlights from this report:

  • Several recent reports predict a home price slowdown in 2022.
  • House values are expected to rise more slowly in 2022 than in 2021.
  • Still, many U.S. cities could see double-digit price growth next year.

In most cities across the country, house prices rose at an unprecedented pace over the past year or so. In the hottest housing markets like — like Austin, Boise and Phoenix — the median value rose by more than 30% in the last 12 months alone.

But a set of recent forecasts suggest that we could see a home price slowdown in 2022. Those forecasts were issued by CoreLogic, Freddie Mac and Zillow (among others).

From a housing market stability standpoint, that would be a positive trend. We need a home price slowdown at this point. Prices in many U.S. cities have risen so much, so quickly that affordability is now considered a nationwide crisis.

Home Price Slowdown in 2022

The most recent report suggesting a home price slowdown in 2022 came from CoreLogic, a property data and analytics company.

In their October 5th report, researchers from CoreLogic predicted a significant slowdown in price growth next year (compared to 2021). Specifically, their prediction covered the 12-month period from August 2021 to August 2022.

To quote that report:

“Home price gains are projected to slow to a 2.2% increase by August 2022, as ongoing affordability challenges deter some potential buyers.”

The company pointed to affordability hurdles as a deterrent for some home buyers. That’s a noteworthy trend that could shape the housing market in 2022, specifically by reducing demand.

Over the past 15 months or so, house values across the U.S. have skyrocketed due to tight inventory and surging demand. Housing affordability, meanwhile, has plummeted to an all-time low in many communities.

This could reduce demand going forward, as more and more buyers find themselves priced out of their local real estate markets. That’s one reason why we might see a home price slowdown in 2022.

Toward the end of September, Zillow published the results of a survey sent to a group of real estate analysts and researchers. The survey panel predicted that house values would slow down over the next few years, compared to the explosive growth over the past year.

According to the survey report:

“Experts surveyed expect home prices nationwide to increase a cumulative 31.8% through 2025, the equivalent of an average annual rate of 5.7% — far below the current annual appreciation of about 17%.”

Is Inventory Growth Shifting the Market?

A reduction in overall housing affordability could lead to a home price slowdown in 2022. But there’s another important factor here as well. Inventory.

For many months now, the U.S. housing market has suffered from a chronic shortage of supply. There’ve been plenty of buyers out there seeking properties, but not enough homes to go around. This imbalance led to bidding wars and skyrocketing house values.

More recently, however, housing market inventory conditions have started to improve. This too could contribute to a home price slowdown in 2022, as part of a broader cooling trend.

According to the Zillow report mentioned earlier, the U.S. real estate market is “beginning to shift toward a balance between buyers and sellers.” Inventory growth has a lot to do with this.

The company also reported that inventory rose for the fourth straight month. The share of listings with a price cut has also risen in recent months, reinforcing the notion that the market is finally starting to cool.

Related: Will inventory gains shift the market?

Overall, Affordability Is Expected to Decline in 2022

Despite a possible slowdown in home prices during 2022, overall housing market affordability will likely continue to decline. There are two main reasons for this.

First of all, home prices are expected to slow down in 2022 — but not reverse course. Some U.S. cities could see a dip in house values next year, but they’ll probably be the exception to the rule. Housing market forecasts suggest that most U.S. cities will experience continued price growth in 2022 (to varying degrees).

There’s also a good chance that mortgage rates will be higher in 2022 than during 2021. As we wrote in a recent report, forecasters expect home loan interest rates to rise over the coming months.

In fact, rates have already shown some upward mobility. According to Freddie Mac, the average rate for a 30-year fixed mortgage rose from 2.86% during mid-September to 3.14% by the end of October.

The bottom line: Housing market analysts expect to see a home price slowdown in 2022, due to a combination of affordability issues and inventory growth. But in most U.S. cities, house values will probably continue to rise for the foreseeable future.

Disclaimer: This article includes forecasts and predictions issued by third parties not associated with the publisher. Such projections are the equivalent of an informed guess and therefore far from certain.