Forecasting the housing market is a little like forecasting the weather. There are so many variables to account for that it impossible to predict the future, especially in the long-term.
However, housing authorities have enough data to forecast a general sense what we can expect in the next year.
On Wednesday, Zillow and Fannie Mae updated their forecasts for next years housing market. Homebuyers can expect another year of low inventory and high demand, though not quite as severe a 2021. There’s also a general consensus that both home prices and mortgage rates will rise throughout 2022. The question is how much.
Zillow expects home prices to grow 13.6% from October 2021 to October 2022, unchanged from it’s September to September forecast released last month. That’s both a hefty increase and a softening from the near 20% growth from 2020 to 2021.
Zillow’s home price growth forecast is on the higher end compared to CoreLogic and Fannie Mae, who foresee home prices appreciating less than 10% next year. On the extreme ends, Goldman Sachs forecasted 16% year-over-year growth while the Mortgage Bankers Association is alone in projecting homes prices to start falling in the second half of 2022.
The main reason for such wide ranging projections is uncertainty over mortgage rates. In early November, the Federal Reserve announced a plan to gradually reduce its stimulus spending which will cause mortgage rates to rise. However, with inflation running well above the Fed’s goal of 2% and proving more stubborn than previously thought, housing authorities are keeping an eye out for more aggressive policy action by the central bank.
According to Zillow, “elevated inflation heightens the risk of near-term monetary policy tightening, which would result in higher mortgage rates and weigh on housing demand. “
In anticipation of further action by the Fed, Fannie Mae revised it’s 30-year mortgage rate forecast from 3.1% to 3.3% for 2022. That’s on the lower end of mortgage rate of forecasts. In October, six housing authority forecasts ranged from 3.1% to 3.8% and averaged 3.55%.
The Fannie Mae forecast in the chart below has since been revised to 3.3%.
Fannie is also predicting an increase in home purchase activity in 2022, suggesting next year could be even busier for homebuyers than the record-breaking 2021. Meanwhile, refinance volume will nearly cut in half due to rising interest rates.
|Year||Forecasted purchase volume||Forecasted refinance volume|
|2021||$1.9 trillion||$2.5 trillion|
|2022||$2.0 trillion||$1.3 trillion|
For homebuyers, increased purchase activity could mean another year of fierce competition and bidding wars, especially if inventory remains razor-thin. They may also find that mortgage lenders are more eager to attract and service purchase loans with refinances drying up.
By most housing authority forecasts, 2022 is shaping up to be similar to 2021. Although rising, mortgage rates will likely remain low enough to fuel demand which, in turn, fuels competition and price growth. And unless inventory makes a quick (and unlikely) recovery, bidding wars will be a holdover feature from 2021.
The kryptonite to rising home prices, mortgage rates, and inflation is not waiting to buy. Homebuyers that put their marker in the ground before another year of double-digit price growth will be earning home equity instead of chasing rising prices.