Will Housing Prices Drop in 2022? The Experts Weigh in

Given the rapid and unexpected rise in home values during the pandemic, a lot of people are now wondering if housing prices will drop in 2022. Concerns of a real estate bubble and a general housing market crash have become common. among home buyers and industry professionals alike.

House and money concept

Many are wondering: Will home prices drop in 2022? Or will the upward trend continue?

While no one can make such a prediction with complete accuracy, it seems highly unlikely that housing prices in the U.S. will drop 2022. In fact, a spate of recent forecasts predicted that home values would continue to climb through this year and into next.

However, many analysts do expect to see smaller price gains next year, compared to 2020 and the first half of 2021. That seems to be the general consensus outlook among housing researchers.

Will Home Prices Drop in 2022?

We reviewed a group of recent housing market forecasts to determine what analysts expect in the months ahead. As it turns out, none of them expect home prices to drop in 2022. But most anticipate a slower rate of price growth next year, compared to the gains recorded over the past year or so.

First, we go to Freddie Mac. This is the government-sponsored corporation that buys mortgage loans from lenders and sells them to investors.

In their April 2021 forecast, Freddie Mac’s research team predicted that U.S. home prices will rise more slowly in 2022 compared to this year and last. By their estimation, house values nationwide rose by 11.3% during 2020. They predict a gain of 6.6% for 2021. Looking ahead, the group predicted that U.S. home prices would rise by 4.4% during 2022.

So while they clearly anticipate a cooling trend, Freddie Mac’s researchers do not expect housing prices to drop in 2022.

Next, we go to the property data and analytics company CoreLogic. In their most recent HPI Forecast, their analysts made a similar prediction to Freddie Mac’s long-range forecast above. The company reported that home prices in the U.S. rose by 11.3% from March 2020 to March 2021. Looking forward, they expect prices to rise by just 3.5% from March 2021 to March 2022.

A recent Reuters poll of 40 housing analysts suggested that house values in the U.S. will rise more slowly in 2022. The surveyed analysts estimated that values would rise by 10.6% this year, followed by a gain of 5.6% in 2022.

According to the Reuters report: “Beyond this year, U.S. house prices were forecast to moderate and average 5.6% growth next year and 4.0% in 2023.”

Similarly, National Association of Realtors chief economist Lawrence Yun estimated that the housing market will downshift next year. As Yun stated in May: “With more inventory and some easing in demand, home prices are expected to shift to mid-single-digit appreciation by the fourth quarter and in 2022.”

An Even Bolder Outlook from Zillow

For an even bolder outlook, we turn to the research team at Zillow. In May, the company reported that home prices in the U.S. had risen by 11.6% over the past 12 months. Their long-range outlook predicts more of the same.

In May of 2021, the company’s website stated: “United States home values have gone up 11.6% over the past year and Zillow predicts they will rise 11.8% in the next year.”

Like most analysts, we do not expect housing prices to drop in 2022. But there are some exceptions to that general outlook. For example, home values in San Francisco actually declined over the past year, according to Zillow. San Francisco is an exception to the rule, but it does illustrate the regional differences in housing conditions.

Biggest Factor: An Ongoing Housing Shortage

There are many reasons why analysts don’t expect home prices to drop in 2022. The number-one reason has to do with inventory levels.

Housing supply across the U.S. remains well below normal levels. That’s been the case for some time now. Inventory conditions were tight going into the pandemic, and they only got tighter due to an unexpected rise in home sales.

In some of the hottest markets (like Austin, Texas and Boise, Idaho) housing market supply levels are lower now than they’ve ever been before. This comes at a time when buyer demand remains strong across the country.

You don’t have to be an economist to connect the dots here. In cities all across the U.S., record-low inventory levels and strong demand have boosted housing prices at a steady pace.

There are two things that could reverse this trend. The first is inventory growth. If more homes come onto the market later this year and into next, it could have a balancing effect and reduce home-price appreciation going forward. But that remains to be seen.

The other factor that could have a cooling effect on the housing market is affordability. Or rather, a lack of affordability. Many U.S. cities are becoming unaffordable to an ever-growing number of residents. As housing markets become less and less affordable, the demand from buyers drops off. This can have a cooling effect on the market.

But overall, home values are expected to continue climbing through 2021 and into 2022. None of the reports or forecasts we have encountered suggest that housing prices will drop in 2022. Of course, as we learned from last year, unforeseen events can arise to shake things up.

Disclaimer: This article includes predictions issued by third parties not associated with the publisher. The Home Buying Institute makes no claims about future housing trends. Real estate predictions are essentially an educated guess and should be treated as such.