Home prices have continued to rise despite rising mortgage rates and housing supply. The figures reflect a robust, expensive housing market. In this blog, we provide housing market predictions for 2022 and 2023. Additionally, we'll provide an answer to a perennial favorite of prospective homebuyers and investors: Will the housing market crash this year? If not this year, when will the market crash again? The housing market is expected to continue its upward trend in the coming years.
But there are some factors that could affect the pace of the market or whether it favors buyers or sellers. Despite the clear signs of a slowing housing market, it remains competitive for homebuyers, with new records set for home-selling speeds and price increases. Home prices are rising due to a mismatch between supply and demand, but this is not a housing bubble. Many experts predicted that the pandemic would cause a housing crash on par with the Great Depression. That, however, is not going to happen.
Housing Market Predictions 2022
The housing market of 2022 is in far better shape today than it was a decade ago. The housing industry has had a boom last year, with the most significant annual gain in single-family house values and rentals, historically low foreclosure rates, and the highest number of home sales in 15 years, reaching 6.9 million for the entire year. The national home prices have increased 33 percent over the previous two years.
The market was driven by record-low borrowing rates in 2020 and 2021 and a constrained supply due to underbuilding. The tremendous demand from first-time homeowners is almost as crucial as the restricted new supply. The exceptionally favorable age demographic trends are also the driving force behind the current housing market.
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 had the ability to 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 on a regular basis 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 rather low. The index had a reading of 120.0 in May, 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.
Communities all around the country are struggling because of low inventories. 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. Despite the fact that 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.
Here are the top housing market predictions for 2022. 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 attitude 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.
The S&P CoreLogic Case-Shiller U.S. National Home Price Index® rose 20.4% year-over-year in April (non-seasonally adjusted), down from 20.6% in March. The annual growth was faster in April than in March in both the 20-city index (to 21.2%, from 21.1%) and the 10-city index (to 19.7% from 19.5%). The annual growth was faster in April than March in only 9 markets included in the 20-city index.
Case-annual Shiller's house price increase is predicted to decelerate in all three indices. Monthly appreciation in May is predicted to slow from April in both city indices and to be unchanged in the national index. Even while inventory is increasing, there is still a considerable amount of room until it reaches its pre-pandemic level. Nonetheless, when combined with reasonably robust demand, low inventory will continue to be a driver for persistent high pricing, even if sales volume declines due to affordability concerns.
As a result, it is predicted that more buyers would be on the sidelines in the coming months of 2022, allowing inventory to recover and price growth to decelerate from its peak, If it happens, it will restore the housing market to a more stable, balanced state in the long run and provide more homeownership opportunities for those priced out of the market today.
Housing Market Forecast for the Second Half of 2022
The new housing market forecast for 2022 by Realtor.com® has been released 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 risen by more than two and a half percentage points. 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 alter 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.
Sales of existing homes have declined 8.6% year-over-year in May 2022. Declining home purchases means more people are renting. First-time buyers were responsible for 27% of sales in May, down from 28% in April and down from 31% in May 2021. Affordability has been hit with a triple whammy of rising interest rates, fast house price increase, and inadequate supply.
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.
Therefore, don't forecast a halt in the home price rise despite the fact that 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. Following a spate of volatility this week, the average rate on 30-year mortgages climbed to 5.78 percent from 5.36 percent the previous week, according to Bankrate’s national survey of large lenders.
Housing Market Predictions For Inventory 2022
Inventory of properties currently for sale on a typical June day rose 18.7% over the last year, the highest rise in record history. On an average June day, there were 98,000 more properties for sale than the year before. While overall housing inventory expanded, condominiums (and other connected homes) declined by 0.2%.
Condos, which made up 20.2% of listings in June, are cheaper than single-family homes (17.5% cheaper in the 50 largest metro areas in June 2022) and have gained appeal in high-priced regions as single-family homes prices have risen. The number of unsold properties countrywide, including current and pending listings, was down 1.4% from June 2021. Last month's drop was 3.9%.
Lagged improvement in the overall number of houses for sale is due to slowing buyer demand, pushed by increasing interest rates and all-time high listing prices that have increased the cost of financing 80% of the median property by 57.6% ($745 per month) compared to a year earlier. The number of pending listings on a typical day has fallen by 16.3% compared to last June, indicating a slowdown in demand is slowing inventory turnover. This decelerates from May's 12.6% annual drop. Lower competition and increased seller activity will help homebuyers.
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. The forecast for inventory growth of existing homes for sale has increased from 0.3% to 15%.
Housing Market Predictions: Will Prices Drop in 2022
The national median listing price for active listings in June 2022 was $450,000, up 16.9% from the previous year and up 31.4% from June 2020. In large metropolitan areas, the median listing price increased by 13.3% year over year. A rise in listing prices indicates strong demand and/or constrained supply. According to Realtor.com, this growth rate in asking prices could also partially be attributed to an increasing share of newly listed larger homes and sellers not yet adjusting to market conditions.
Given the increased supply and sluggish sales and pending listings, the median listing price deceleration signals that seller expectations may be altering. The small price slowdown relative to the large (-16.3%) drop in pending listings (signifying lower demand) implies the median list price is affected by other variables besides demand. The percentage of newly listed smaller residences (up to 1750 square feet) fell from 47.3% last June to 45.7% this June, while bigger properties rose from 52.7% to 54.3%.
Higher, more costly homes make up a larger percentage of what's for sale this year than last, resulting in slower price deceleration than predicted due to weaker demand. The median list price of pending listings–homes for which the seller has accepted a buyer's offer–decelerated from 16.2% in May to 13.9 percent in June. This means buyers are picking less costly properties, and sellers have adjusted their expectations to market conditions.
- 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.
Will the Housing Market Crash?
The overarching question is will the housing market crash or when, exactly, between 2022 and 2025? The simple answer is that it will not crash anytime soon. We don't predict a housing market crash in 2022. 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 to catch 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 in 2022; 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” or 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 on 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 towards 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 2022 & 2023. It will continue to be a seller's real estate market in 2022. Expect to see bidding wars on hot properties for sale, especially in this summer home-buying season.