Most housing forecasts see sales gains, easing price hikes this year

Home sales should climb in 2022 as buyers seek to beat mortgage-rate hikes, while increases in prices should cool as more properties come on the market.

Q. You spent a lot of time this past year writing about the nation’s hot housing market. Do you think it will stay strong in 2022?

A. It should, especially when it comes to overall home sales, but most experts say those gains will be tempered by much more modest price increases than we saw over the past 12 months and gradually rising mortgage rates.

I am devoting this entire column to answering some common questions that readers are asking about the market’s future in the new year.

Though most economists are still bullish on the housing sector’s prospects, their projections vary widely. Economists at the National Association of Realtors (www.nar.realtor)— who have established a fairly good record of forecasting over the years — said that sales should climb 6.6 percent in 2022 but that median prices will rise only 2.9 percent after a remarkable 12 percent gain last year.

Conversely, online real estate giant Zillow.com states that sales will rise more modestly but that prices will jump a much higher 11 percent as the number of homes for sale remains relatively low, and sellers will continue to hold the upper hand in negotiations.

Q: Why do you think interest rates will rise?

A: For the same reasons that I (accurately) predicted that rates would slowly climb toward the end of 2021.

Until recently, the rate-setting Federal Reserve Board kept the rate it charges for overnight loans to banks at virtually zero. This policy allowed lenders to offer record-low mortgage rates to borrowers while still collecting healthy profits.

As the economy continues to pick up steam, though, the Fed will have to slowly raise rates in 2022 to curb borrowing and keep inflation under control. That would translate into higher mortgage rates, perhaps within the next few months and almost certainly by midsummer.

Q: How high could loan rates go?

A: Rates on 30-year, fixed-rate mortgages ended last year at about 3 percent. Most economists expect them to reach at least 3.5 percent in 2022 — which would add $55 to the cost of a $200,000 loan — or even reach 4 percent, adding $112.

If your 30-year mortgage rate is more than 3.5 percent or so today, it would probably be a good idea to refinance now — especially if you could afford the slightly higher payments for a 15-year loan, with rates still at 2.5 percent or less.

Q: Won’t higher interest rates hurt sales?

A: They should not. Though rates will likely go up, they will remain far below historic levels.

Relatively low rates, along with the expected increase in average household income as more Americans get back to work, will help soften the blow on buyers caused by rising home prices.

Q: How will the ongoing pandemic affect sales and prices?

A: Not much. Some economists in late 2020 and early 2021 said the pandemic would send sales and prices into a tailspin, but they were wrong: Sellers and buyers alike simply adapted by using improving technology to market or purchase a home over the internet, while low mortgage rates and fast-rising prices created an even greater sense of urgency among many buyers to make a deal before their affordability issues could worsen.

The ongoing pandemic, though, will continue to have more subtle impacts on the nationwide housing market this year.

For example, with a growing number of companies allowing their employees to permanently work from home, some smaller cities and even semirural areas have seen a big uptick in sales because it is cheaper for telecommuting workers to buy a house there rather than in the urban areas, where their employer is headquartered. Expect that trend to grow even stronger this year.

The effects of the pandemic will also be softened by the fast-growing technology that allows buyers to get a comprehensive online “tour” of a home that they might want to buy without setting foot in the property or even meeting their sales agent face to face.

Buyers and sellers now also have the enhanced ability to sign virtually all the needed documents to complete a transaction over the internet. That renders COVID-19 concerns nearly irrelevant.

Q: Which parts of the nation are expected to have the strongest housing markets?

A: Most economists agree that they will be in areas that have a healthy technology sector: New England, mountain states such as Utah and Idaho, Indiana and a few other parts of the Midwest, and the Southern states of Florida and South Carolina.

An exhaustive survey of realty trends in 100 major metropolitan areas that was recently released by the National Association of Realtors identified what it calls the “Top 10 Housing Markets for 2022.” The survey is based on its projections of both sales and price gains that should easily exceed national averages.

Salt Lake City topped the list. It was followed by Boise City, Idaho; Spokane, Washington; Indianapolis; and Columbus, Ohio.

The following five were the greater metro areas of Providence, Rhode Island; Greenville, South Carolina; Seattle; Worcester, Massachusetts; and Tampa, Florida.