Experts predict interest rate hikes, slowing inflation and home-price growth in 2022

WASHINGTON — Expect slower housing price appreciation, easing inflation and rising interest rates in 2022, according to a survey of more than 20 top U.S. economic and housing experts. During NAR’s third annual yearend Real Estate Forecast Summit, Lawrence Yun, NAR chief economist and senior vice president of research, unveiled the consensus forecast today.

In 2022, the group of experts predicts that annual median home prices will increase by 5.7 percent, inflation will rise 4 percent, and the Federal Open Market Committee will twice increase the federal funds rate by 0.25 percent.

“Overall, survey participants believe we’ll see the housing market and broader economy normalize next year,” Yun said. “Though forecasted to rise 4 percent, inflation will decelerate after hefty gains in 2021, while home price increases are also expected to ease with an annual appreciation of less than 6 percent. Slowing price growth will partly be the consequence of interest rate hikes by the Federal Reserve.”

Yun forecasts U.S. GDP to grow at the typical historical pace of 2.5 percent, barring any major, widespread transmission of the omicron COVID-19 variant. In addition, he expects the 30-year fixed mortgage rate to increase to 3.5 percent as the Fed raises interest rates to control inflation but noted this is lower than the pre-pandemic rate of 4 percent.

The housing market performed better than it has in 15 years in 2021, with an estimated 6 million existing-home sales. However, as mortgage rates tick up slightly, Yun predicts existing-home sales will decline to 5.9 million in 2022. He also forecasts a modest increase in housing to 1.67 million as the pandemic’s supply chain backlogs subside.

TOP 10 HOUSING MARKET “HIDDEN GEMS” IN 2022

NAR identified 10 housing markets as “hidden gems” that are expected to experience stronger price appreciation than other markets in 2022. In alphabetical order, the markets are as follows:

• Dallas-Fort Worth, Texas

• Daphne-Fairhope-Farley, Alabama

• Fayetteville-Springdale-Rogers,

Arkansas-Missouri

• Huntsville, Alabama

• Knoxville, Tennessee

• Palm Bay-Melbourne-Titusville, Florida

• Pensacola-Ferry Pass-Brent, Florida

• San Antonio-New Braunfels, Texas

• Spartanburg, South Carolina

• Tucson, Arizona

“The housing sector performed spectacularly in 2021 in many markets, with huge gains achieved in places like Austin, Boise and Naples,” Yun said. “Several markets did reasonably well in 2021, but not as strong as the underlying fundamentals suggest. Therefore, in 2022, these ‘hidden gem’ markets have more room for growth.”

NAR considered a market a hidden gem based on two categories: 1) if the market’s ratio of median home price to median family income is in the lower half of the 379 metro areas analyzed and 2) if the following seven indicators reflecting the strength of housing demand for that market are in the upper half of metro areas — wage growth, job growth, the ratio of the change in population to the sum of housing permits, population growth, net domestic migration, percentage of the population ages 25 to 44 and the percentage of households with broadband service. NAR’s top 10 list only includes metro areas with populations of at least 200,000.

To view NAR’s Top 10 Housing Market Hidden Gems report, visit nar.realtor/research-and-statistics/researchreports/2022-housing-market-hidden-gems.