A Guide To Housing Market Predictions For 2022

By Rocket Mortgage

Like the year before, 2021 was an interesting time for real estate. The pandemic helped to create one of the most competitive housing markets in recent U.S. history. Median home prices catapulted toward gigantic highs and dwarfed the housing market predictions for 2021, which were originally expected to still feel some dead weight due to COVID-19.

Will buying a house in 2022 be smooth sailing for Americans? Despite eye-popping sales in certain markets, will it start to pivot from a seller’s market? In fact, first-time home buyers may start to see the tide shift in their favor by the end of 2022.

Keep tabs on the trends that will continue to evolve so you can navigate a changing real estate market. By doing so, you can lock down the best opportunity to purchase a new home this year.

Real Estate Market Predictions For 2022

In this section, we’ll walk through several real estate trends for 2022, including mortgage rates, home prices, home values and more.

Mortgage Rates

According to ongoing  2022 forecasts, interest rates are likely to continue to rise and level out throughout the year. Last year, experts predicted that average interest rates would break the 3% range in 2021, but they did not rise much higher than 3.1 – 3.3%. However, 2022 has been a different story. The 30-year fixed-rate mortgage average interest rate hit 5.51% as of July 2022, according to Freddie Mac. Some of this increase has been spurred by the Federal Reserve’s recent fed funds rate hike.

Thankfully, rates are expected to fall back to 4.6% by the end of 2022, based on Freddie Mac’s quarterly forecast. The National Association of REALTORS® (NAR) similarly predicts that mortgage rates will return to a lower range of around 4.3% by this year’s end.

This is good news for prospective home buyers worried about housing prices and rising rates. While mortgage rates are likely to grow a little higher, most experts believe that they should level out by the end of the year.

In the meantime, buyers can make an effort to improve their credit scores, which will help them secure the lowest possible interest rate for a home loan. Most types of mortgages require a minimum credit score between 500 to 620 for approval, but having a higher score will ensure you enjoy a better rate.

On the other hand, if buyers don’t want to delay the purchase of a new home, they can also refinance their loan later, once their score has improved and rates have dipped.

Home Prices

Low mortgage rates, supply shortages and the work-from-home trend has encouraged home sales and also created higher prices in 2022. Although, the price trend will likely be more moderate compared to housing market predictions in 2021.

So far, the median home sales price has grown 17.6% (as of May 2022) compared to the previous year, according to Realtor.com. Two main factors that have caused this spike are:

  • Housing supply shortages: Construction of new single-family homes has been stymied by supply chain and labor shortages. In the past, new home construction has helped regulate the demand for homes. However, home prices may continue to climb as a result of these shortages.
  • Work-from-home trends: Continued interest in remote work will drive up real estate costs in hotter real estate markets. According to Realtor.com, one in five homeowners will look to move to the suburbs because they no longer need to situate themselves close to their jobs in a city center.

Home price growth means that buyers will need to make sure they can afford the houses they plan to buy, particularly in certain pockets of the country. Prospective home buyers may want to use mortgage calculators to determine home price affordability in advance and also potentially save more for a down payment.

With limited housing inventory, buyers may also be concerned about bidding wars. Although bidding wars have decreased recently, it’s always a good idea to have a very strong offer when buyers are ready to bid. To help set themselves apart from competing offers, buyers can get a verified approval letter beforehand. This extra confirmation might appeal to wary sellers who are interested in speeding up the sale of their home.

Home Values

Home value is different from home price – home value refers to the amount a professional appraiser has given a home. It’s sometimes called the “current market value.”

What will happen to home values in 2022? Bidding wars changed home values in 2021 because real estate-hungry buyers were willing to pay more for homes than the homeowners’ asking price.

According to data from our friends at Rocket HomesSM, 1, home values were up 10.74% from January 2020 to the same time in 2021. From January to November 2021, prices were up 17.48%. Similarly, home values should continue to rise throughout 2022.

To offset this issue, buyers can ensure they’re not overpaying for a prospective home by getting an appraisal. If an appraiser determines that the property’s value is too low, that means the list price or offer amount may be too high and the borrower could end up with negative equity if the sale moves forward.

Millennials Will Drive The Housing Market Upward

More than 45 million Millennials, who typically fall between the ages of 26 and 41, will plan to buy their first homes in 2022, according to the 2022 Housing Forecast from Realtor.com. Despite the increase in the number of homes, demand from Millennial buyers may keep prices higher.

Fortunately, first-time home buyers are eligible for specific assistance and loan programs. Many of these options are available through government entities, like Fannie Mae or Freddie Mac. They can also choose to use government-backed mortgages, such as VA or FHA loans. No matter what assistance or loan program they choose, buyers can take advantage of these offers to make homeownership more affordable.

The Bottom Line

Based on forecasts, the housing market will continue to change in 2022. Mortgage rates, home prices and home values are expected to steadily rise. Though many aspects of the housing market will experience a slowdown, home price appreciation will occur.

As more homeowners list their homes for sale in 2022, these homes may remain on the market for longer periods of time. Even so, buyers will need to act quickly because the housing market is still a seller’s market due to the demand that still outpaces supply.

Article originally appeared on Rocket Mortgage.

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