Will the housing market improve in 2022?

The 2021 housing market was a double-edged sword for home shoppers.

Low rates and increased flexibility with working from home put many first-time buyers on the map. But limited inventory and skyrocketing prices made housing harder to come by.

But things could soon level out to a more ‘normalized’ market, according to the experts.

Although rates are rising and home supply remains low, competition might start to taper off and price gains could moderate.

In short, 2022 should be a better market for many buyers.

In this article (Skip to…)

• Housing market predictions
• Home price predictions
• Inventory predictions
• Mortgage rates forecast
• Will the market crash?
• Should I buy now or wait?

Ask Rick Sharga, executive vice president for RealtyTrac, and he’ll tell you that the housing market should continue its strong performance through 2022.

“Demand will continue to be driven by low mortgage rates and demographics. Consider that the largest cohort of millennials is approaching prime age for first-time homeownership,” he says.

“The pandemic has also contributed to the recent boom in home buying, in part due to the ability many employees now have to work from home and to health concerns, which encourages city dwellers — mostly renters — to look for more spacious residences in areas with lower population density.”

Potential for improvement

Paul Buege, president and COO of Inlanta Mortgage, also thinks the market will remain strong. But he foresees prices and demand cooling off at least a little in 2022.

“Positive indicators are hinting to a more favorable housing market in 2022. The heated pace of sales is beginning to show signs of moderation, and this is helping to increase the number of homes for purchase,” says Buege.

“With more homes on the market, prices should begin to moderate. This suggests that the balance between sellers and buyers will shift toward a more normalized market next year.”

Look out for rising rates

Chuck Biskobing, a real estate attorney at Cook & James, agrees that home price gains should start to level off next year. But he also cautions that higher interest rates could result in less buying power for prospective purchasers.

“If inflation does not abate, the Fed and market may push rates higher more quickly than expected, which can take a toll on affordability,” Biskobing explains.

If your home buying plans hinge on today’s low rates, that may be reason enough to continue your search now rather than waiting until 2022.

According to CoreLogic, prices increased by more than 18% between August 2020 and August 2021.

This was “the largest annual gain in home prices in the 45-year history of the CoreLogic Home Price Index” — and it came right on the heels of large year-over-year increases in July and June.

Unfortunately, home values aren’t likely to stop rising or start falling any time soon.

But the good news is, home prices gains might slow down, which could take some of the pressure off prospective buyers.

Home price gains could slow to around 5%

“I expect home prices to continue to rise, primarily due to limited supply. However, price increases will moderate next year to accommodate household affordability,” says Albert Lord, founder and CEO of Lexerd Capital Management.

He notes that the national median listing price in August was $380,000 — 16% higher than in 2020. “For 2022, I predict an increase in home prices by 5%,” says Lord.

Interestingly, one expert believes home prices are only just catching up from the previous decade.

“They’re just now only getting to where they should be on a 20-year arc,” believes John Hunt, founder and principal of MarketNsight.

“The boom and bust of the Great Recession held prices down, especially for resale, for a decade. Consider that the average price appreciation over the last 20 years is 4.5%. We will be heading back to that normal in 2022 and beyond.”

High demand means price trends won’t reverse

Nik Shah, CEO of Home.LLC, anticipates home price appreciation cooling slightly next year.

“Nevertheless, we expect prices to continue increasing in 2022, fueled by millennial demand, low interest rates, and low housing inventory levels,” Shah continues.

Sharga points out that the work-from-home movement may continue to enable people to move from more expensive markets to smaller, less expensive areas, which would dramatically inflate prices in some of the smaller markets.

“On the other hand, we might see some price corrections in a few of the higher-price markets like the Bay Area in California,” he adds.

Ralph DiBugnara, founder of Home Qualified, agrees that supply should improve somewhat in 2022. But he warns that the lack of inventory of homes for sale will continue to be a problem.

Housing inventory could improve a little in 2022, but will likely remain a problem for years to come.

“According to Fannie Mae, we will still see an almost 50 percent shortage of homes available to meet a normal demand of buyers,” he says. “I believe it will take two to three years for the inventory shortage to normalize again.”

And don’t forget that supply chains remain disrupted from COVID, and worker shortages continue to present challenges to home builders.

“I believe we will be in a state of housing shortage for another decade,” says Hunt. “We still have the problem of city and county governments not permitting higher-density product, which allows for affordable and workforce housing.

“Also,” he adds, “boomers who should be selling their homes and adding to inventory are not moving — mainly because they have nowhere to go due to lack of inventory. It’s a vicious cycle that I expect will last for a very long time.”