Housing Market Predictions 2022: Will Prices Drop?

January 14, 2022

BY Natalie Campisi, 

Dec, 28, 2021  Forbes Staff Advisor

The housing market has been breaking new records across multiple fronts throughout 2021, leaving home shoppers wondering if they should buy now or wait in the hope that more homes become available, and at more affordable prices in 2022.

So far, home price appreciation is up year-over-year (YOY) by 18.5% in the third quarter, the highest level in the Federal Housing Finance Agency (FHFA) House Price Index history. Inflation has shot up at the fastest pace since 1982. At the same time, the number of houses for sale has dropped, creating greater pressure on home prices.

Housing supply plunged to its lowest level in history, with just 1.38 million homes on the market in June, down 23% annually. Buyers scooped up homes faster than ever before, shrinking the number of days homes spent on

the market to a record-low of just 15 days.

And mortgage rates are holding steady around the 3.1% mark for a 30-year, fixed-rate mortgage–although it’s not the lowest on books, it’s mighty close.

Here’s what this means for 2022, according to housing experts.

Will Home Prices Rise In 2022?

Depending on whether you’re the buyer or seller, you might be very happy or very disappointed to learn that home prices are poised to rise in 2022, most experts say. While headwinds like rising mortgage rates and a significant uptick in Covid-19 cases may impede price growth, they won’t stop home price appreciation from climbing.

“Much of what drove high price growth this year will follow us into next year,” says Nicole Bachaud, an economist at Zillow. “We will expect to see prices rising at extremely high levels for the first few months of 2022 before beginning to taper off towards more normal levels.”

Most experts say housing demand will stay strong in 2022 unless inflation continues to outrun wages at the current feverish pace, which could stall buyer appetite. Rising inflation is also putting renters in a pinch who can no longer afford to save as much for a down payment when rental rates are skyrocketing.

The national average rental price for a one-bedroom jumped 21.3% and more than 16.7% for a two-bedroom in October on a YOY basis, according to the latest Apartment Guide and report.

“What can affect demand is the affordability challenge,” says Danielle Hale, chief economist at “One thing that can offset that is a more competitive labor market.”

A recent survey by the Conference Board suggests a 3.9% in wage costs for companies in 2022, which would be the highest jump in salaries since 2008. But even this bump wouldn’t make it easier for most entry-level buyers to access homeownership.

The wild card that could cool home prices is getting Covid under control enough that it would convince people to move back to big cities, says Todd Teta, chief product and technology officer at Attom, a property data firm. He also says that the reverse could happen—a spike in Covid cases, for example—stoking more interest in suburban real estate.

“If the pandemic fades, interest in rental housing in congested urban areas could rekindle, especially if employers start demanding that more workers return to their offices. That could significantly reduce buyer demand and ease the pressure on prices,” Teta says. But “all of this will depend on how many more people with the means to buy are worried about where they live now and how the pandemic proceeds.”

It’s important to note that while these are national trends, real estate is local. So while places like Boise, Idaho had a 37.3% price jump YOY, Philadelphia saw more modest price growth of 9.9% during the same period.

Home Inventory Predictions for 2022

A major determinant of home price trends is how much supply is available relative to demand. One way to gauge this is to look at the months’ supply of homes for sale, which estimates how long the existing inventory for sale would last based on the current sales rate if no more new houses were built.

The lowest months’ supply for 2021 was in January, with just 3.6 months’ supply and the highest was in August with 6.6 months, a considerable jump, according to the Federal Reserve Bank of St. Louis. Although supply gradually picked up in spring through late 2021, some forecasters expect supply to slacken.

For one, new home construction is getting hampered by the rising cost of building materials and a severe shortage of labor. All building materials, from copper to steel, have jumped in cost but lumber prices, in particular, have hit astronomical price increases. The futures price of lumber jumped to an all-time high of $1,670 per thousand board feet in May. It began to cool in the summer, dropping to $454 per thousand board feet in August. However, it shot back up to more than $1,044 as of December 20.

Amid the affordability crisis in housing, the Biden administration is moving to make the costs of lumber even more expensive. The Commerce Department said November 24 that it will nearly double tariffs on softwood lumber imported from Canada from an average of 8.99% to 17.99% on their imports.

Several lawmakers and major trade groups like the National Association of Homebuilders are calling for a reduction in Canadian tariffs as mounting lumber costs can topple the gains new home construction made in the past six months.

“With Biden doubling tariffs on Canadian lumber, it will add a lot of pressure on home costs and how long it takes to build a home,” says Robert Dietz, chief economist and senior vice president for economics and housing policy for the National Association of Home Builders. “That’s why you see the median price of a new home above $400,000.”

The median price of a new house was $407,700 in October, up 17.5% from a year ago, according to the Federal Reserve Bank of St. Louis. New home prices have been climbing at an accelerated rate since the Covid-19 pandemic began. In April 2020, the median new home price was $310,100, the lowest point before jumping nearly $100,000 more during a span of 18 months.

As for existing homes entering the market, much of that will depend on the pandemic, says Selma Hepp, deputy chief economist at CoreLogic, a real estate data analytics company.

“While Baby Boomers preferred to downsize prior to the pandemic, it appears that they are staying put for now,” Hepp says. “Up to now, there has not been a notable increase in for-sale inventory as Baby Boomers stayed put, and potentially hosted their children and family.”

Should You Buy a Home Now Or Wait?

Buyers with the means to buy a home now may be looking at pricing factors like interest rates when deciding whether to leap. However, first-time buyers face much steeper challenges, like rising down payment requirements.

As home prices escalate, so does the down payment and monthly mortgage costs. This means that some buyers might have to save up more money or look for less expensive housing. As more companies have allowed their employees to work remotely, some buyers have moved to more affordable areas, but that’s not the case for everyone.

James McGrath, a licensed real estate broker in New York and co-founder of Yoreevo, a residential brokerage, says demand will begin to cool in 2022, so there might be more availability for those who wait.

“It’s very hard for the amount of sales to remain at record levels when there isn’t much to sell,” McGrath says. “It seems all but certain that the number of transactions will decline. With this, buyers can be more patient. There should be less competition from buyers and more houses to choose from as we normalize on both.”

There are unforeseen variables that can alter the course of real estate at any time, so the best strategy is to make sure you can afford the house you buy and still have room to save up for rainy days. For example, if you’re buying with a partner or co-signer and they lose their job, make sure you can pay the mortgage with just one income.

You should also plan on living in it for at least five years or enough time to cover your closing costs, so you don’t end up losing money when you sell. A mortgage affordability calculator is a great tool for figuring out your budget.