A New Housing Market Forecast Predicts Slower Price Growth in 2022

Home prices in the United States have risen to unprecedented heights over the past year. In many housing markets across the country, double-digit annual gains are now a common feature.

But what about next year? What might house values due in 2022? While no one can answer this question with certainty, one recent housing market forecast predicts slower home-price growth in 2022 compared to this year.

Housing Market Forecast Predicts Cooling Prices

On July 15, the government-sponsored mortgage buyer Freddie Mac published its latest quarterly housing market forecast for the U.S. Among other things, the group predicted that home-price growth in the U.S. would “moderate” or slow down in 2022.

According to Freddie Mac’s housing market forecast, 2022 home value increases will be less than half of what we’ve seen this year.

Of course, this is all speculative in nature. House price and housing market forecasts are the equivalent of an educated guess based on current trends. Still, it’s noteworthy when some of the most knowledgeable housing analysts predict that home prices will rise more slowly next year. And that’s what we have in this forecast.

  • In 2021, the researchers expect U.S. home prices to rise by an average of 12.1%.
  • In 2022, their housing market forecast suggests that prices will rise by 5.3%.

In a sense, this kind of slowdown would represent a return to normalcy. If you look at U.S. home price trends over the past few decades, you’ll see that they tend to rise somewhere between 3% and 5% annually. The strong double-digit gains we’ve seen over the past year represent an anomaly driven by an overheated housing market. Such rapid home-price growth is generally unsustainable over the long term, as it prices many buyers out of the market.

A 5.3% increase in home prices (as predicted in Freddie Mac’s latest housing market forecast) would more closely reflect historical trends. It would be a more “normal” rate of growth.

Strong Demand, Short Supply Boosting Home Values

Freddie Mac’s latest housing market forecast also pointed out the major factors that are boosting prices. According to their report, rising home values in the U.S. are largely the result of (A) low mortgage rates increasing demand, and (B) a major shortage of supply.

To quote their report:

“High house price growth has been supported by increased demand due to low mortgage rates, disposable after-tax income that has risen during the current recession and a major shortage of housing supply relative to our population … But, we do forecast house price growth to moderate in 2022, with full year house price growth of 12.1% in 2021 followed by 5.3% in 2022.”

This is something we’ve reported on many times in the past. Low mortgage rates and several COVID-related factors have increased demand among home buyers in the U.S. Meanwhile, inventory levels within the housing market have been hovering at all-time lows. The supply situation was already tight going into the pandemic, and it only got tighter over the past year or so.

More recently, however, we have seen a reduction in home buyer demand as evidenced by sales data. The short version is that a lot of would-be buyers have become frustrated by the shortage of homes and the rapid rise of prices. Some have backed out of the market entirely.

Over time, this kind of demand reduction can cool the real estate scene and slow home-price growth. This could be why Freddie Mac’s housing market forecast for 2022 predicts smaller gains ahead.

A Bigger, Bolder Forecast Issued by Zillow

But not everyone sees a huge drop-off in home price growth as we move into 2022. A recent housing market forecast from Zillow predicted that house values could rise by double digits between now and summer 2022.

Granted, this particular forecast doesn’t cover all of 2022, like the Freddie Mac outlook cited above. But it’s worth noting all the same.

This month, Zillow predicted that the median home value in the U.S. would rise by around 13% between now and July of 2022. That would follow actual growth of around 15% during the previous 12 months.

According to a late-July statement on the company’s website: “United States home values have gone up 15.0% over the past year and Zillow predicts they will rise 13.2% in the next year.”

Real Estate Conditions Vary Greatly By Region

Real estate conditions can vary widely from one market to the next. In some of the hottest U.S. housing markets — such as Austin, Boise and Salt Lake City — prices have risen by more than 20% over the past year. In other cities and metro areas, growth has been much more moderate by comparison.

Consider the difference:

  • Home prices in Austin, Texas rose by more than 30% over the past year, according to Zillow.
  • In San Francisco, California, the median only rose by around 2% during the same timeframe.

So we’re talking about a wide spectrum here, in terms of annual growth rates. Every real estate market is different.

The same variation applies to housing forecasts for 2022. Some of the hottest markets across the country are expected to see double-digit annual price growth next year. Other areas could see a return to historically “normal” growth in 2022, in terms of house values.

This is why it’s so important for home buyers to conduct thorough and local research, before entering the housing market. While most cities across the country are currently experiencing a strong seller’s market and rapidly rising prices, conditions can vary greatly from one region to the next.

Prediction #2: Slightly Higher Mortgage Rates in 2022

Freddie Mac’s latest housing market forecast for 2022 also predicted a gradual rise in mortgage rates, between now and next year. By their estimation, the average rate for a 30-year fixed mortgage loan could rise to 3.4% by the end of this year and continue climbing into 2022.

As of last week, 30-year mortgage rates were averaging 2.78%. Freddie Mac’s forecast suggests they could rise to an average of around 3.8% by the end of 2022. That would be more than one percent higher than where we are now (assuming their predictions prove accurate).

From a home buyer’s perspective, a steady rise in house prices is the bigger concern. If home values in the U.S. continue to climb as they have in past months, more and more buyers could get “priced out” of the housing market. A slight and gradual rise in mortgage rates would be a lesser concern.

Disclaimer: This report includes housing market forecasts and predictions provided by third parties not associated with the publisher. The Home Buying Institute makes no claims about future real estate trends and conditions.