5 economists and real estate professionals share their predictions for the 2022 housing market

What economists and other professionals think will happen to the housing market in 2022.

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Last year, buyers and would-be homebuyers experienced a frantic race, with bidding wars and rising prices, as interest rates hovered near all-time lows (see the lowest fares you could qualify for here). Here’s what five economists and real estate professionals told us they think will happen in 2022.

Prediction 1: Mortgage rates will rise

“Mortgage rates skyrocketed in January as mortgage investors realized what the Fed intended to do, which was to raise interest rates aggressively this year,” said Holden Lewis, real estate expert and mortgage at NerdWallet. “Now mortgage rates are rising more gradually as markets wait for the Fed to clarify its timing.”

“For perspective, the 30-year mortgage averaged 4.09% in the 2010s and 12.71% in the 1980s, people bought a lot of homes in both eras,” says Lewis. This month, Bankrate chief financial analyst Greg McBride said he expects 30-year fixed-rate mortgages to average between 3.65% and 3.85%. %, with fixed rates over 15 years varying between 2.8% and 3%. “The bulk of these rate hike moves were made in January as markets revised their expectations of the Federal Reserve. Moves in the coming weeks should be more subdued, however,” McBride says.

But with rates rising in recent months, reaching their highest levels since March 2020, Gregory Heym, chief economist at Brown Harris Stevens, says they should continue to rise as the Federal Reserve scales back its purchases of bonds, which will most likely lead to a rate hike in March. Sure, mortgages go up and down week by week, but Lewis says, “Expect more up weeks than down weeks in 2022.” (See the lowest fares you could qualify for here.)

Although the Fed does not directly control mortgage rates, the general tightening policy of stopping the purchase of mortgage-backed securities and raising the short-term federal funds rate will drive mortgage rates higher. In fact, Lawrence Yun, chief economist at the National Association of Realtors, says, “The average 30-year fixed-rate mortgage rate is expected to reach 3.8% by the fourth quarter.

Prediction 2: Home price growth could “return to normal”

Heym says the market is suffering from record inventory levels, which have pushed prices to new highs even as the number of sales has fallen. “I don’t expect that to change in the next few months as homebuilders can’t build homes fast enough to solve the supply problem,” Heym says. Specifically, Yun says home prices are significantly higher by double-digit percentages compared to a year ago. “However, with mortgage rates rising and some buyers’ prices falling, house price growth will return to normal at around 5% for the whole of 2022,” Yun said.

Prediction 3: Expect short-term bidding wars

Time is also running out as the 2021 interest rate locks with 60-90 day expiries are set to expire any day. But what does this mean for buyers? Essentially, they rush in and outbid properties in hopes of getting a low interest rate before the next Fed increase. “It’s causing bidding war frenzies,” says Pierre Debbas, managing partner at real estate law firm Romer Debbas LLP.

Prediction 4: It will always be a tough market for buyers

Buyers will continue to have limited options in most areas as inventory will remain scarce, the pros say. “Prices will continue to rise which, combined with higher mortgage rates, will drive some buyers out of the market,” says Heym. That said, it will continue to be a strong seller’s market, which means if you’re thinking of putting your home up for sale, there’s no better time than the present.

While the power will remain firmly in the hands of sellers this year, according to Zillow economist Nicole Bachaud, prices will rise significantly. “We are seeing monthly growth accelerating earlier in the year than normal, but we don’t expect it to increase as much as in 2021,” Bachaud said. According to data from Zillow, home values ​​in 2021 grew 19.6% for the year and forecasts call for 16.4% growth in 2022.

Prediction 5: But there are still jokers

The big wild card is the permanence of work-from-home policies or even hybrid employment models. “This will lead to changes in residential location choices with more households willing to buy a home farther from work and therefore house price growth will be stronger in smaller towns and suburbs compared to downtown areas. cities,” Yun said.

Prediction 6: Spring will bring more activity

With the spring home shopping season fast approaching, expect activity to heat up. “Inventory and sales are likely to pick up over the next few months,” says Bachaud.

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