Housing Market Predictions
The housing market saw an incredible year last year, with record-low interest rates, the strongest yearly growth in single-family values and rentals, a generational low in foreclosure rates, and the highest number of home sales in 15 years. As numerous buyers battled for the winning bid, house sellers witnessed a market in which their properties sold rapidly and frequently for prices over the listing price.
2022 was also predicted to be a prosperous year for the housing market but rising inflation and mortgage rates changed its outlook completely. Compared to the previous year, the housing market has significantly cooled, with home sales declining and prices rising at a moderate rate. In this blog post, we will discuss the latest housing market predictions for 2022 and the next twelve months.
According to the latest report published by Fortune, Moody's Analytics analyzed 322 regional housing markets. Of those, the firm predicts 100% will see a peak-to-trough home price decline. Moody's Analytics now predicts U.S. home prices will fall 10% between peak-to-trough due to the combination of an intensified housing market downturn coupled with 7% mortgage rates.
Among those markets, Moody's Analytics predicts 196 housing markets to see a home price decline greater than 10%. That includes markets like Morristown, TN (-26% forecasted decline); Muskegon, MI (-25.5%); Pocatello, ID (-23.4%); Boise, ID (-23.3%); and Flagstaff, AZ (-21.6%). Reversely, Moody's Analytics expects the smallest declines to come in Montgomery, AL (-1.4% forecasted decline); Erie, PA (-2.3%); Trenton-Princeton, NJ (-2.7%); Gainesville, FL (-3.1%), and Baltimore-Columbia-Towson, MD (-3.2%).
The forecast by Moody's Analytics also assumes the U.S. does not slip into a recession. If the unemployment rate were to go above 6%, Zandi predicts home price declines would be much greater than his firm currently forecasts. Indeed, if a recession does manifest, Zandi says the peak-to-trough U.S. home price decline would likely be between 15% to 20%. In “significantly overvalued” housing markets, Zandi says, that decline would likely be between 25% to 30%.
As housing demand continues to decelerate and both buyers and sellers attempt to regain their footing, it is important to remember that the surge in housing demand in 2021 was fueled by unusual circumstances, such as COVID-19-induced demand for more space and vacation homes, as well as record-low mortgage rates.
Also Read: Housing Market Trends in October 2022
The path to a healthy housing market will be difficult, but it will eventually provide a better balance between buyers and sellers and, ideally, homeownership chances for households who were excluded during the too-competitive seasons of 2021 and early 2022. Despite this, there are still many concerns regarding the housing market.
Critically, despite the fact that shortage of supply has been one of the primary drivers of home price growth, rising interest rates are deterring both potential sellers and new construction. As a result, there is no hope for an improvement in the housing supply and a sustainable housing market that would result from an increase in inventory.
The large and sudden increase in mortgage rates that occurred this year rendered an already expensive housing market far less affordable. Home prices experienced a meteoric rise in the early years of the Covid pandemic for a number of reasons, including the fact that demand was at an all-time high, supply was at an all-time low, and mortgage rates reached a number of all-time lows.
The current housing market trends indicate buyers remain interested, keeping the market somewhat competitive, especially for attractive, well-priced homes. However, some factors may influence the market's pace or whether it favors buyers or sellers. Higher mortgage rates and recession fears have cooled housing markets from early spring highs.
The majority of the weakening demand appears in expensive West Coast markets where prices have risen in the last two years. Buyers are still interested in more affordable, warmer regions. Buyers continue to face stiff competition, particularly for desirable properties, with multiple offers and final sales prices that exceed asking prices.
The market is shifting away from sellers to more balanced conditions. A little pressure on home price growth will continue through the end of the year, and housing prices will continue to rise due to a supply-demand mismatch. Many experts predicted that the pandemic would result in a housing crash comparable to the Great Depression. That, however, will not happen. Even in the second half of 2022, housing prices are unlikely to fall, but they are expected to rise very slowly as compared to last year's pace.
Housing Market Forecast 2022 to 2023
The latest from Zillow is that it predicts that the final months of 2022 will not bring about significant increases in home values, even though it forecasts that home values will increase in the majority of markets between October 2022 and October 2023. As a result of rising mortgage rates, the value of homes in around two-thirds of the nation's main housing markets declined throughout this past summer.
The economic jolt caused by rising mortgage rates is continuing to eat away at some of the gains that were earned in the spring of 2022. Zillow projects typical U.S. home values to fall 0.6% from October 2022 to January 2023, before recovering and posting 0.8% growth by the end of October 2023. The national Zillow Home Value Index, which rose 11.9% in the 12 months ending in October 2022, is expected to grow by just 0.8% over the next 12 months.
This long-term outlook is slightly lower than last month’s call for a 1.2% annual increase. This downward revision is due in large part to expectations for more declines in home sales volume in the coming months. A weaker home sales forecast translates to more inventory, and therefore a faster correction in home values, leading to a downward revision.
Zillow’s forecast for existing home sales in 2022 was revised down slightly as leading indicators point to a continued slowing in the housing market in the near term. Expectations for continued weakness in home sales volume led Zillow’s one-year home value forecast to be revised downward in November.
The real estate group expects 5.1 million existing homes to be sold in the calendar year 2022 – a 16% decrease compared to 2021. This is down slightly from September’s forecast of 5.2 million. High mortgage rates and major affordability challenges are predicted to drive weaker sales in 2023. As mortgage rates reached 20-year highs in October, it is making monthly payments unaffordable for new buyers. As buyers and sellers are stepping away from the market, home prices are likely to remain stable.
Goldman Sachs analysts published a study titled “The Housing Downturn: Further to Fall” on August 30. The investment bank now predicts that activity in the US housing market will be down by the end of 2022. This year, the business predicts steep reductions in new home sales (22%), existing home sales (17%), and housing GDP (8.9%). Goldman Sachs projects further declines in 2023 in new home sales (another 8% drop), existing home sales (another 14% drop), and housing GDP (another 9.2% drop).
Even if employment remains high, housing sales volumes are anticipated to dip in the second half of 2022 and throughout 2023. Historical data suggests that sales could fall by 15% or more. Low inventories will prevent home prices from declining. Strong job growth, low inventories, and tight supply will cause unequal price movements. Lower price tiers are more susceptible to interest rate hikes, while higher price tiers are more resistant to price decreases. The mix of homes that sell may be smaller on average as the market reacts to increasing mortgage rates and decreased affordability.
Current Home Price Trends & Forecast Until August 2023
Attom, a curator of national real estate and land data, recently released its U.S. Home Affordability Report for the third quarter of 2022. The report shows that median-priced single-family homes and condos remain less affordable now than a year ago in 99 percent of the 581 U.S. counties analyzed. The latest number is up from 568 in the same group of counties in the second quarter of 2022, 398 in the third quarter of 2021, and just 284, or less than half, two years ago. And, that’s up from 69 percent in the third quarter of 2021, according to the report.
“While home prices have declined a bit quarter-over-quarter, they’re still higher than they were a year ago, and interest rates have essentially doubled,” Rick Sharga, executive vice president of market intelligence at Attom, said in a statement. “Many prospective homebuyers simply can’t afford the home they hoped to buy, and in many cases no longer qualify for the mortgage they’d need.”
CoreLogic HPI™ is designed to provide an early indication of home price trends. The CoreLogic Home Price Insights report features an interactive view of its Home Price Index product with analysis through August 2022 with forecasts through August 2023. United States home prices nationwide, including distressed sales, increased year over year by 13.5% in August 2022 compared with August 2021.
On a month-over-month basis, home prices declined by 0.7% in August 2022 compared with July 2022. The CoreLogic HPI Forecast indicates that home prices will increase on a month-over-month basis by 0.0% from August 2022 to September 2022 and on a year-over-year basis by 3.2% from August 2022 to August 2023.
Although U.S. home prices resumed their 127-month streak of annual growth in August, they dropped to 13.5% for the fourth consecutive month. Since April 2021, this is the lowest year-over-year appreciation recorded, which mainly reflects sustained cooling buyer demand due to increased mortgage rates and housing patterns driven by the end of the COVID-19 outbreak.
The 0.7% month-over-month price fall also reflects a decrease in homebuyer enthusiasm, with roughly three-quarters of states reporting declines since July. No states posted an annual decline in home prices. The states with the highest increases year over year were Florida (26.4%), Tennessee (20%), and North Carolina (19.9%). These large cities continued to experience price increases in August, with Miami on top at 27.1% followed by Phoenix at 17.8%, and Las Vegas also at 17.8% year over year.
According to CoreLogic’s Home Price Index forecast, annual home price growth is expected to slow to 10% by December, half of the peak 20% increase recorded in April 2022. Home price deceleration and seasonal declines in some markets will provide opportunities for potential buyers who are now facing less competition than earlier this year. Nevertheless, with mortgage rates currently above 6% and little signs of slowing, housing demand will suffer beyond what was initially expected earlier this year.
The 10- and 20-city composite indexes also showed signs of deceleration — up by 14.9% and 16.1% year over year, respectively — compared with 17.4% and 18.7% growth in June. That’s a decline of about 2.5 and 2.6 percentage points, respectively, in just one month. And while the overall tendency for more price increases in smaller markets continues to drive the 20-city index growth higher, slowing price gains were slightly higher in the 20-city index.
Compared with the 2006 peak, the 10-city composite price index is now 44% higher, while the 20-city composite is up by 53%. Adjusted for inflation, which continues to remain concerningly elevated, the 10-city index is now up by 1%, while the 20-city index is up by 7% compared with the 2006 peak.
Housing Market Forecast for the Second Half of 2022
The housing market forecast for 2022 by Realtor.com® was released in June as a mid-year update. After more than a year of skyrocketing demand, and skyrocketing home prices, the housing market appears to be cooling off. The housing market is not collapsing, but it is heading towards more balanced conditions from an unsustainable peak of last year.
This year, mortgage rates have more than doubled from where they were in early January. Furthermore, the increasing expenses of purchasing a home have altered many prospective purchasers' calculations. As a result, year-over-year house sales have fallen in recent months. A record 79 percent of respondents in a Fannie Mae study on homebuyer sentiment indicated it's a poor time to buy a home.
Home sales activity kicked out 2022 stronger than anticipated, but rising costs have led to altering their forecast downward. Realtor.com now forecasts a 6.7% decline in house sales in 2022. They anticipate the greatest year-over-year decline in house sales at the customary peak of the summer selling season. Home sales on par with these predictions would mean that 2022 sales are the 2nd highest tally since 2007, trailing only 2021.
In the second half of 2022, house price growth will moderate, although it has been hotter for longer than anticipated, resulting in an upwardly revised forecast of a 6.6% home price rise for 2022. That's an increase from their previous forecast of 2.2% growth in home prices. More than a decade of chronic underbuilding, coupled with millions of millennials entering the homebuying stage of life, has resulted in a major mismatch in housing supply and demand in the United States.
- The median sales price appreciation prediction for existing homes has increased from 2.9% to 6.6% for 2022.
- The prediction for existing home sales has shifted from positive growth of 6.6% to an annual fall of 6.7%.
- Mortgage rates have been revised upward to reflect the major shift in monetary policy and financial conditions over the last 6 months.
- In the second half of 2022, housing finance rates are predicted to climb at a more modest pace, which means that rates may hit 5.5% by year-end.
- As mortgage rates have increased, prospective homeowners have submitted fewer loan applications.
- According to the Mortgage Bankers Association, mortgage purchase applications decreased by 16 percent (in the week ending June 10) compared to the same week last year.
- With mortgage rates, well above 5 percent, refinancing activity, which was brisk during the epidemic when rates were at an all-time low, has dwindled by more than 70 percent compared to last year.
Therefore, don't forecast a halt in the home price rise even though mortgage rates are rising significantly. While housing costs remain high, forcing homebuyers to make difficult decisions, it is predicted that the number of properties for sale will continue to increase, building on the reversal that began in May 2022. That is a sign of relief for first-time home buyers.
Increasing housing inventory is excellent news for buyers. Homebuyers will have additional options as a greater number of homeowners want to adapt their living situations to changing personal demands and take advantage of favorable market circumstances to access the substantial wealth they have accrued.
Homeowners continue to be in a favorable position, particularly those who have owned for extended periods of time and amassed substantial wealth. This is forecasted to attract additional sellers looking to capitalize on favorable market circumstances, resulting in increased competition and a rebalancing of the housing market away from its previous seller-friendly bias. This bodes well for seller-buyers who have been disappointed by the scarcity of purchasing possibilities.
Housing Market Forecast 2022: Freddie Mac
According to Freddie Mac, there are currently 18 percent more persons aged 25 to 34 than there were in 2006. This represents an increase of 6.6 million prospective first-time homeowners, from 39.5 million in 2006 to 46.1 million today. In addition to the increase in first-time homebuyers, the number of high-income renters who can afford to buy and are of prime first-time homebuyer age has also been growing.
In 2006, lending criteria were significantly loosened, and little examination was done to determine whether or not a borrower could repay their loan. These days, the requirements are more stringent, which lowers the risk for both the lenders and the borrowers. Consistent with a more challenging housing market for buyers, the share of buyers that faced at least one mortgage denial before getting approved grew from 22% in 2020 to 34% in 2021.
The government and jumbo segments had the most significant tightening in the previous month. These two housing markets couldn't be more different from one another, and the current situation is in no way comparable to that of the past. The Mortgage Credit Availability Index (MCAI) is an index that is released regularly throughout the year by the Mortgage Bankers Association (MBA). This index is used to measure how simple it is to get a mortgage.
The higher the index is, the more options there are for obtaining mortgage finance. In 2004, the index was hovering around the 400 mark. As the housing market heated up, mortgage loans became more available, and then in 2006, the index surpassed 850. The mortgage credit availability index (MCAI) fell as a result of the fall in the real estate market since it became nearly hard to get mortgage financing.
Since then, thankfully, the conditions for lending have been relaxed a little bit, although the index is still relatively low. The index had a reading of 108.3 in August 2022, which is around one-seventh of what it had been in 2006. It remains more than 30 percent below pre-pandemic levels. Because there aren't as many options on the housing market, a lot of people in the United States are having a hard time finding the house of their dreams.
The MCAI fell by 0.5 percent in August. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI decreased by 1.0 percent, while the Government MCAI remained unchanged.
Over the past decade, chronic underbuilding and the influx of millions of millennials into the homebuying market have resulted in a major mismatch in housing supply and demand. Even though mortgage rates are skyrocketing, the housing market is not going to crash any time soon. The result will be a much slower rate of appreciation than in the past two years. We are predicting the housing market for the next 5 years and to recognize patterns that may influence real estate values and rentals beyond a year.
Freddie Mac's own regression research indicates that a 1 percent rise in mortgage rates reduces home price increases by around four percentage points (for example, moving from 11 percent home price growth a year to 7 percent ). In contrast, analysts at J.P. Morgan expect a greater impact of around six percentage points lower home price increase.
Since home values are so high, the housing market may be more susceptible to rate increases than in the past; therefore, the greater estimate appears realistic. While it seems apparent that rising interest rates will reduce housing demand by reducing affordability, the actual past is a significantly less reliable indicator of what will occur because of a huge balancing impact – interest rates often rise when the economy is expanding.
The government-sponsored enterprise forecasts that for every one percentage point increase in mortgage rates, house sales would decrease by around five percent, and price growth will slow by four to six percentage points. If mortgage rates stabilize at current levels, and all other factors remain constant, their analysis predicts a much slower, but still positive house price rise with a wide regional range depending on migration trends.
As work-from-home becomes increasingly popular, it is anticipated that the housing market will continue to be undersupplied and that migration to lower-cost areas will continue to rise. This is significant since most booming cities have a major housing shortage due to a previous inflow of population.
Finally, favorable demographics suggest that the robust demand for first-time homebuyers will persist. This is due to the fact that there are still a substantial number of younger renters with sufficient income to sustain homeownership, and they should continue to be a formidable force for the foreseeable future. As the economy faces various headwinds in the next months and years, these variables should continue to exert a substantial influence on the housing market.
The quarterly housing outlook pulse poll conducted by Freddie Mac assesses public attitudes on housing-related problems. Since the beginning of the epidemic, market confidence has reached its lowest point in the second quarter of 2022. In addition, as a result of the impact of growing inflation on the cost of living, they found an increase in housing payment difficulties, particularly among renters.
- 51% are confident the housing market will remain strong over the next year.
- This is down 7 percentage points from last quarter.
- 56% of renters and 24% of homeowners spend more than 30% of their monthly income on housing.
- 51% are concerned about making housing payments, up 4 percentage points from last quarter.
- This is true for 68% of renters (a 10-percentage point increase from last quarter) and 38% of homeowners (a 3-percentage point decrease from last quarter).
- 24% are likely to buy a house in six months.
- 17% of homeowners are likely to sell in the next six months.
- 23% of homeowners are likely to refinance in the next six months.
Housing Market Crash Predictions For Next Few Years
The housing market is far better than it was a decade ago. Last year, the housing industry experienced a boom, with the most significant annual increase in single-family house values and rentals, historically low foreclosure rates, and the highest number of home sales in 15 years, totaling 6.9 million for the entire year. Over the previous two years, national home prices increased by 33%.
The market was driven by record-low borrowing rates in 2020 and 2021, as well as a supply constraint due to underbuilding. The enormous demand from first-time buyers is almost as important as the limited new supply. The current housing market is also being driven by exceptionally favorable age demographic trends.
The overarching concern is whether or not the housing market will crash, and if so, when. The simple answer is that it will not crash anytime soon and we certainly don't see a housing market crash coming in 2023. Rising rates are cooling the market as some expected but the prices are still rising at a slower rate. The current trends and the forecast for the next 12 to 24 months clearly show that most likely the housing market is expected to see a positive home price appreciation.
In recent years, the price of homes has climbed dramatically. Many prospective buyers, especially those with limited financial resources, are eager to hear whether and when home prices will become more accessible. Here is when housing market prices are going to crash. While this may appear to be an oversimplification, this is how markets operate.
When demand is satisfied, prices fall. In many housing markets, there is an extreme demand for properties at the moment, and there simply aren't enough homes to sell to prospective buyers. Home construction has been increasing in recent years, but they are so far behind catching up. Thus, to see significant declines in home prices, we would need to see significant declines in buyer demand.
Demand declines primarily as a result of rising interest rates or a slowing economy in general. Ultimately, for rising interest rates to destroy home values, we'd need substantially less demand and far more housing supply than we presently have. Even if price growth moderates this year, it is extremely improbable that home prices will crash. Thus, there will be no crash in home prices; rather, there will be a pullback, which is normal for any asset class. The home price growth in the United States is forecasted to just “moderate” and slow down in 2022 and 2023.
Affordability will be a concern for many, as home prices will continue to rise, if at a slower pace than the previous year. With 10 years having now passed since the Great Recession, the U.S. has been in the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy.
However, hot economies eventually cool and with that, hot housing markets move more toward balance. Housing market forecasts are essentially informed guesses based on existing patterns. While the real estate pace of last year appears to be reverting to seasonality as we approach 2022, demand is not waning.
Increasing interest rates will almost certainly have a greater impact on the national housing market in 2022 than any other factor. While sellers remain in an advantageous position, price stability and the continuation of competitive interest rates may provide some much-needed relief to buyers this year. Housing supply is and will likely remain a challenge for some time as labor and material shortages, as well as general supply chain issues, delay new construction.
The latest housing market trends show that prices are rising in most parts of the country and most price segments because of the lack of supply. Economic activities are ramping up in all sectors, mortgage rates are rising, and jobs are also recovering. The housing market remains largely a seller's market due to demand still outpacing supply. The inventory of available houses continues to be a constraint on both buyers and sellers.
Forecasting home price appreciation is a challenging task. While inventory has increased slightly, it remains significantly below pre-pandemic levels and is simply unable to meet current demand. Tight supply following years of underbuilding, combined with increased demand due to remote work, and US demographics — will continue to be a factor in 2023. It will continue to be a moderate seller's real estate market in 2023.