The Washington Post
As mortgage rates rise, home prices should slacken
Last year was great for selling a home but not a great year if you were trying to buy one. Home prices rose sharply and the number of homes for sale declined. Although the 2022 housing market will still tilt toward sellers, it offers a slightly better chance for buyers to snag their dream homes.
The story of 2021 was how quickly home prices accelerated. The national median home price hit $362,800 in June, an all-time high, according to the National Association of Realtors. The CaseShiller home price index peaked in August, when prices rose 19.8 percent year-over-year that month. Phoenix home prices were up 33.3 percent year-onyear, San Diego home prices were up 26.2 percent, and Tampa home prices were up 25.9 percent.
Low mortgage rates and limited supply helped push prices higher. There were just 1.38 million homes for sale nationally in June, down 23 percent year-overyear, according to Redfin.
“The ongoing pandemic, including its seismic effect on the U.S. economy and the way Americans live and work, has made 2021’s housing market anything but typical,” said Daryl Fairweather, Redfin’s chief economist. “Remote work, low mortgage rates, a shortage of building materials and wealth inequality that has allowed an influx of affluent Americans to buy vacation homes, to name just a few factors, have come together to create a historic year for real estate. Buyers paid more for homes, bought sooner than they planned, searched outside their hometowns or all of the above. [2021’s] frenzied housing market has been one for the books — but it may become more balanced in 2022.”
According to Redfin data, the typical home sold in 15 days last year, and more than 60 percent went off the market in two weeks.
NAR’S profile of home buyers and sellers, an annual report now in its 40th year, found that about a third of buyers in 2021 purchased their homes for above the asking price. First-time buyers increased to 34 percent last year, up from 31 percent in 2020. That was the largest jump since 2017. The typical first-time buyer was 33 years old.
Here’s a look at what the housing experts expect in 2022.
National Association of Realtors
The housing market was doing well at the turn of the year and may normalize, said Lawrence Yun, chief economist at the National Association of Realtors, a trade association for real estate agents.
“All markets are seeing strong conditions, and home sales are the best they have been in 15 years,” Yun said. “The housing sector’s success will continue, but I don’t expect [2022’s] performance to exceed [2021’s].”
He said sales may decline this year but predicts that they will exceed pre-pandemic levels. His forecast is based on an expectation of more inventory in the coming months. The increased supply will be generated, in part, from new housing construction as well as from the end of forbearance for struggling mortgage payers, a situation that will cause some homeowners to sell.
“With more housing inventory to hit the market, the intense multiple offers will start to ease,” Yun said. “Home prices will continue to rise but at a slower pace.”
Yun projects that mortgage rates will increase to 3.7 percent in 2022, pushed up by persistently higher inflation.
NAR surveyed more than 20 economic and housing experts to gauge their expectations of home-price growth, new-home sales and existing-home sales for 2022. The group predicted that median home prices will rise by 5.7 percent this year. New-home sales are forecast to rise to 920,000 in 2022, up from last year, which is expected to have had about 800,000 new-home sales. Existing-home sales are anticipated to dip to 5.9 million, down from last year, which is expected to have had about 6 million sales of existing homes.
The experts identified 10 “hidden gem” housing markets across the country. The locations on the list are: Knoxville, Tenn.; Spartanburg, S.C.; Fayetteville, Ark.; Dallas-fort Worth; Huntsville, Ala.; Tucson; San Antonio; Daphne-fairhope-foley, Ala.; Pensacola, Fla.; and Palm Bay-melbourne, Fla.
Home buyers will have a better chance to find homes in 2022 but will face a competitive seller’s market, said Danielle Hale, chief economist at the real estate listings website.
“Affordability will increasingly be a challenge as interest rates and prices rise, but remote work may expand search areas and enable younger buyers to find their first homes sooner than they might have otherwise,” she said.
Hale predicts the price appreciation for existing homes will be 2.9 percent.
“Affordability challenges will keep prices from advancing at the same pace we saw in 2021 even as ongoing supply-demand dynamics mean prices continue to grow nationwide,” she said.
Hale said sales of existing homes will rise 6.6 percent. She expects 2022 to have the secondhighest sales in the past 15 years, surpassed only by 2021.
The number of homes on the market will tick up by 0.3 percent, and single-family housing starts will rise 5 percent, she said. She expects the 30-year fixed mortgage rate to average 3.3 percent for most of the year and be at 3.6 percent by the end of the year.
Homeownership among Hispanics will continue to grow, Hale said.
“Hispanic home buyers are already a sizable share of the housing market, comprising more than 1 in 10 recent home buyers, yet still underrepresented relative to their roughly 1-in-5 share of the U.S. population,” she said. “This demographic group is expected to play a growing role in the home-buying market. Notably, recently successful Hispanic home buyers were younger than the population of recent home buyers at large, and a majority were first-time home buyers.”
The online real estate brokerage doesn’t expect the 2022 housing market to be any more predictable than it was in the past two years.
“2022 will bring more balance to the housing market. But don’t expect a buyer’s market; just more selection, less frenzy and slower price growth,” Fairweather said. “We will see a rush to buy homes at the start of the year before mortgage rates rise. That early onslaught of demand will deplete the supply of homes for sale. In the second half of the year, a much-needed increase in new construction will boost sales slightly. In 2022, there will be 1 percent more sales than in 2021, and by the end of the year, home price growth will slow to 3 percent.”
Fairweather expects mortgage rates to rise to 3.6 percent by the end of 2022, a trend that should moderate the increase in home prices. With the slowing of dou
ble-digit price growth and a slight increase in newly constructed homes, she expects the number of homes on the market to surpass 2018’s high of 7.6 million. Because of soaring home prices in cities such as Austin, Atlanta and Phoenix, buyers will move away from the Sun Belt toward more affordable Rust Belt towns such as Columbus, Ohio; Harrisburg, Pa.; and Indianapolis, she predicts.
Economists at the online home sale marketing company say the housing market may not reach the incredible heights of 2021, but they expect it will be anything but slow.
Zillow’s forecast calls for 11 percent home value growth in 2022, down from a projected 19.5 percent in 2021. It expects sales of existing homes to total 6.35 million, up from an estimated 6.12 million in 2021.
The Zillow economists say the market forces that have given sellers the upper hand over the past two years or so — tight supply after years of under-building, and elevated demand because of remote work, U.S. demographics and low mortgage rates — will persist this year. They expect bidding wars on many homes, especially as the market heats up during the spring and summer shopping season.
A year ago, the Zillow economists predicted that Austin would be the hottest market of 2021 as part of a “Sun Belt surge.” In 2022, they say, the Sun Belt surge will expand to smaller Sun Belt cities as price hikes in 2021’s star markets make less-expensive markets nearby more attractive.
Because Americans are taking advantage of remote work flexibility to move to larger homes in more-affordable markets, the Zillow economists predict that more Gen Zers and millennials will buy “second homes” — vacation or investment properties — before primary residences. As prices and mortgage rates rise, the Zillow economists expect, many homeowners will upgrade their existing homes rather than try to wade back into the market to trade up. They predict that the renovation boom will continue.
National Association of Home Builders
Low inventory and strong demand should continue to propel the home-building industry in 2022.
Single-family builder confidence remained high at the end of 2021, registering 84 on the NAHB/WELLS Fargo Housing Market Index. It peaked at 90 in November 2020, cooled somewhat to start 2021 and then steadily rose to close out the year.
“If we’re thinking, ‘ Why is it still in the 80s despite all the challenges?’ ” said Robert Dietz, the chief economist at NAHB.“IT’S fundamentally about the lack of existing home inventory.”
Persistent supply-side problems will limit the pace of construction as well as cause home prices to rise. The supply-chain bottleneck has made appliances more expensive and scarce. The Biden administration doubled the tariff on Canadian lumber to 18 percent, which has increased raw materials costs.
“It’s taking longer to build, and it’s costing more,” Dietz said. “Using the [Producer Price Index] inflation data, we build a basket of goods that are connected to residential construction, and right now, those prices are up about 19 percent year-over-year.”
Shortages of skilled labor persist. Dietz said more than 400,000 jobs are open in the industry, on top of the fact that NAHB estimates the construction industry needs to add 740,000 workers a year to make up for retirements and the industry’s growth.
Because of these head winds, Dietz forecasts single-familyhome starts in 2022 at a little over 1.1 million, just 1 percent growth. That would be down significantly from the 13 percent growth in 2020 and the 9 percent growth in 2021.
“2020 and 2021 represented a shift up in the production levels,” Dietz said. “On net, 2022 would represent about a 25 percent increase in the volume of single-family construction from where we were in 2019. So there was a dip in the spring of 2020, an unsustainable rebound during the second half of 2020, a little bit of a cooling to the 1.1 million level. We think that’s going to continue in 2022, despite some of the challenges with housing affordability that we expect to increase.”
Dietz expects sales of new homes to be down about 6 percent in 2021 when the final numbers come in but to be up 8 percent in 2022.
“The growth rates on newhome sales, I would argue, are a bit misleading,” Dietz said. “Because in the second half of 2020, when housing was that bright spot, we had that unsustainable period of really exceptional, historically strong demand. Builders took a lot of sales and then pulled back on offering them at the start of  so that they could build out their backlog. So when you look at the counts of sales contracts signed by builders with buyers, it actually dipped a little bit. That’s part of the cooling process.”
Rising home values have increased equity, which will continue to fuel the remodeling boom. After a 10 percent growth rate in 2021, it will cool to a 6 percent gain in 2022.
Dietz forecasts 6 percent growth for apartment construction, noting that in the multifamily space, 95 percent of the construction will be for rent. Usually, that number is around 80 percent.
Mortgage Bankers Association
The trade association for the real estate finance industry forecasts mortgage originations for purchases to grow 9 percent in 2022, to a record of $1.73 trillion. MBA economists are expecting refinance originations to tumble by 62 percent to $860 billion this year, down from an estimated $2.26 trillion in 2021.
Total mortgage originations (purchase and refinance) are expected to decline 33 percent from 2021 to $2.59 trillion. Purchase originations are forecast to rise to a record value this year, but higher mortgage rates are expected to dampen refinance volume.
MBA economists predict that the 30-year fixed-rate mortgage will rise to 4 percent by the end of 2022.
“Mortgage lenders and borrowers should expect rising mortgage rates over the next year as stronger economic growth pushes Treasury yields higher,” said Mike Fratantoni, MBA’S chief economist.
Fratantoni expects another strong year for the housing market.
“Home builders will have more success overcoming current building material shortages and should be able to increase the pace of construction to meet the sizable demand for buying,” he said. “More newly built homes and more homeowners listing their homes for sale should lead to some deceleration in homeprice growth next year. This is good news for the many would-be buyers who are currently priced out or delaying decisions because of low supply conditions and steep home-price appreciation.”
Credit availability is about 30 percent lower than pre-pandemic levels.
“Mortgage supply will need to increase modestly so that qualified buyers can get access to financing for their home purchase,” said Joel Kan, an MBA economist. “This will be important for the wave of potential first-time homeowners who are approaching prime homeownership age.”
Greg Mcbride, chief financial analyst at the financial website, predicts that the 30-year fixed mortgage rate will peak at 3.75 percent during the year and fall back to 3.5 percent by the end of the year.
“Long-term rates will move higher in the first half of the year, but by the close of 2022, concerns about slowing economic growth will be unwinding that and bringing them back down,” he said. “This will be higher than where mortgage rates started the year but ending at levels previously unseen before the pandemic began in 2020. The drop-off in refinancing activity will mean lots of competition among lenders thirsting for volume and plenty of lenders with rates much better than the average.”
Mcbride expects that the rate for home equity lines of credit will be 50 basis points (0.5 percent) higher by year’s end. He forecasts that the HELOC rate will be 5.05 percent and the home-equity loan rate 6.25 percent.
“Homeowners with existing home-equity lines of credit can expect their rates to march higher alongside Fed rate hikes,” he said. “The average HELOC rate will move up by more than that, however, as many of today’s promotional offers below 3 percent will not be around at the end of 2022. On home-equity loans, a fixedrate product offered by far fewer lenders, the average rate will trend higher in response to [Federal Reserve] rate hikes but more modestly, rising a little more than one-quarter percentage point by year-end.”
After two tumultuous years, Jacob Channel, senior economic analyst at the online loan marketplace, said this year should be less dramatic.
“2022 is on track to be — at the very least — somewhat more stable than the past two years,” he said. “But we still aren’t likely to see the housing market and the broader economy immediately return to pre-pandemic norms.”
Channel predicts that the 30year fixed mortgage rate will rise to near 4 percent by the end of the year.
“This could make home affordability an even greater challenge, especially for lower-income buyers,” he said. “Fortunately, rising rates aren’t all bad news, as higher rates will likely mean fewer new home buyers and an overall less hypercompetitive housing market.”
Channel foresees home price growth of 5 percent in 2022.
“Home prices throughout much of the U.S. have risen dramatically since the start of the pandemic, but a greater supply of housing on the market and diminished consumer demand driven by higher rates should result in much less growth this year,” he said.