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What To Expect From The U.S. Housing Market In 2022

Kevin Graham10-Minute Read
April 09, 2022

The pandemic first upended the U.S. housing market in March of 2020. Then it came roaring back with a vengeance later that same year and throughout 2021 as people realized their current homes were no longer right for them after having spent so much time there.

Now that 2022 is well underway and we’re headed into home buying season, we thought we would take a look at 2022 market trends. There’s low inventory but high demand, which has led to ever-higher price increases. But can we expect this to last forever?

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Where We Were At The End Of 2021

If you’re thinking about buying a house, it’s important to realize that there are two forces which constantly impact the housing market: the level of inventory relative to sales along with mortgage rates. Let’s look at where we ended 2021 before we get into current conditions and what we expect from the rest of 2022.

On the inventory side of things, it’s important to note that we talk about two different types of homes: existing and new construction. Existing home sales make up the majority of activity within the U.S. housing market because newly built homes are pricier.

On the existing home sales front, in December 2021, it would have taken just 1.8 months to sell through all the inventory that was available on the market. For perspective, housing markets are generally considered in balance between buyers and sellers when there’s about 6 months’ supply. The lack of inventory meant the median home price for existing houses was $358,000, up 15.8% from December 2020.

Looking at the December report for new home sales, we see that inventory was exactly 6 months, indicating a market where neither builder nor buyer holds a distinct advantage in terms of sales leverage. Perhaps because of this, year-over-year increases in price were much more moderate at 3.3%, finishing the year at a median of $377,700. While an existing home might be cheaper, the difference at the end of 2021 wasn’t all that high.

The other factor that’s really key to look at is mortgage rates. If we look at weekly mortgage rates for December 2021, we see that average rates for the 30-year fixed are bouncing up and down in the low 3% range.

When we analyze mortgage rates, we’re speaking about the market-based factors that influence them. Although your personal rate is influenced by a variety of factors (including your credit score, down payment and the type of property you buy), what pushes them up and down is the market. The two market factors that most impact mortgage rates are the federal funds rate and demand for mortgage-backed securities (MBS).

The federal funds rate is the rate at which banks borrow money from each other overnight. The range in which they can do that is set by the Federal Reserve. If the rate is low, banks tend to develop more money and people and businesses buy more things, creating more jobs and stimulating the economy. On the other hand, having more money in circulation makes people more willing to pay higher prices. If these prices become too high, it’s inflation run amok and money you have saved in the bank ends up being worth considerably less.

We’ll get into how this and MBS trading impact mortgage rates later on.

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Where We Are In The Current Housing Market

There are several ongoing housing industry conditions that are impacting home buyers and sellers in their approach to the market. These include high demand, low inventory and consequently ever-higher prices.

Continued High Demand

As soon as most of the country emerged from lockdowns, demand spiked to almost unheard-of levels. Part of the demand had to do with home buying season getting started late anyway. However, a lot of it was people spending more time in their homes than they ever had before and realizing the space didn’t work for their new lifestyle.

The average time on market for an existing home according to the National Association of REALTORS® is 18 days at the time of this writing. They’re selling almost as fast as they can be put up for sale.

Lower-Than-Anticipated Inventory

Overall inventory in the housing market has been lower than anticipated. According to the most recent existing home sales report, supply is at 1.7 months, which is crucially low. A market is considered in balance if there is about 6 months’ worth of supply.

This is bad because most people look for an existing home first given the fact that they’re cheaper relative to new construction. This is creating a spiraling cycle because homeowners aren’t putting their homes on the market as interest rates are higher and they are concerned they won’t be able to find another home if they sell.

On the new home sales side, inventory actually looks OK, primarily because people try to buy existing homes first in most cases. However, if you’re thinking the gap could be made up with more construction of new homes, that inventory situation has been made worse by a lumber shortage as well as a shortage of labor. They can’t construct as many houses as are needed in some cases.

Ever-Increasing Prices

High demand and low supply means prices continue to rise. According to the S&P Case-Shiller Home Price Index, prices are up 19.09% in the last year. It’s likely there won’t be relief until supply goes up, demand goes down or both.

What’s Changed About 2022 Predictions For The Housing Market?

There’s a high level of uncertainty throughout the economy at this point and it’s having an impact on the outlook for the 2022 housing market. Let’s get into some of these factors that are changing thinking around the housing market.

Higher-Than-Expected Inflation

As recently as late last year, the Federal Reserve thought that inflation problems had more to do with issues in the supply chain than anything else. It was a slow go getting the wheels of industry moving coming out of lockdowns. The thought was that once supply caught up, inflation wouldn’t present a widespread issue.

However, this year inflation has continually run at 7% or higher. Given this, the Fed has been forced to admit that inflation is no longer viewed as a temporary problem. Higher house prices have contributed quite a bit to this as well.

Anticipated Interest Rate Hikes

In order to help get inflation under control, the Federal Reserve plans to do the one thing it can under its mandate: increase the federal funds rate. If the committee continues to push that rate up, the theory is that banks will be more reticent to lend the money they have on hand and the cost of borrowing funds will be higher. The good news is you should earn more money on your savings account.

The bad news is it’s going to get more expensive to borrow money for any number of things, including getting a mortgage. According to the most recent projections from the Federal Reserve, the median expectation is for the rate to be 1.9% by the end of 2022. For context, up until recently, the rate has been in the range of 0% – 0.25%. Although not directly correlated, the federal funds rate and mortgage rates tend to follow the same general direction.

The Fed also wants to sell back its existing portfolio of mortgage-backed securities. MBS are the investment vehicles underlying mortgage rates. They’re sold on the bond market and are considered some of the safest investments because people are always going to try to prioritize their mortgage payment. On the downside, they don’t offer the high returns of riskier investments like stocks.

When the pandemic hit, the Fed bought trillions of dollars’ worth of MBS in order to keep interest rates low because housing makes up a sizable portion of overall U.S. economic growth. The Fed wants to get these off the balance sheet so they have room to do it again in the face of another economic crisis.

When the Fed sells, there’s no other investor who is likely to step in and buy at that volume. Because of this, the rate of return on MBS will have to be higher to attract investors. When the yield is higher, rates have to push higher. The Fed is expected to soon announce plans on how it will dispose of the MBS it owns.

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How High Will Housing Market Prices Go?

It was predicted that home prices would substantially fall in 2020 given that no one was moving around for the longest time in the face of lockdowns. What actually happened was the opposite. As soon as lockdown orders were lifted, Americans snapped up whatever inventory was available with a voracious appetite. Although the frenzy isn't quite as high as 2020, home values and prices have continued to appreciate at a high rate.

While unlikely to sustain the pace of price increases seen in 2020 and 2021, prices are expected to continue to rise in 2022.

We’ve looked at price levels in the overall United States as well as five individual states to give you an idea of where home prices have been and where they’re going. U.S. data comes from the Federal Reserve Bank of St. Louis. State data comes from state chapters of the National Association of REALTORS®. Pricing projections are based on splitting the difference between 2020 price increases and the crazy increases seen in 2021 as the housing market got back on its feet after the pandemic.

Median home price

U.S.

Washington DC

Hawaii

Texas

New York

Massachusetts

2019

$322,500

$586,900

$568,894

$245,000

$271,000

$385,000

2020

$322,600

$619,450

$569,115

$252,000

$262,000

$435,000

2021

$382,600

$660,000

$697,688

$300,490

$370,000

$436,375

2022 (projected)

$393,695

$699,930

$776,666

$333,694

$440,115

$465,394

 

City-level home price data is a little harder to find just given how the city-level indexes usually work. However, we can give you relative percentage increases in values based on S&P data. Our projections will be based on a simple average of the 2020 and 2021 percentages in the same way that we calculated the projections above.

Median home price change

U.S.

Boston

New York City

Seattle

Los Angeles

Detroit

2019

N/A

N/A

N/A

N/A

N/A

N/A

2020

0.03%

4.2%

1.99%

7.29%

4.04%

3.6%

2021

18.6%

16.17%

14.79%

20.76%

14.76%

13.73%

2022 (projected)

9.31%

10.18%

8.39%

14.03%

9.4%

8.66%

How Much Will My Monthly Mortgage Payment Increase If Projections Are Correct?

If you're currently in a fixed-rate mortgage, your monthly payment won't change at all, excluding taxes and insurance if you have an escrow account.

However, if interest rates continue to increase at the projected pace, your mortgage payment could increase quite a bit if you're in an adjustable-rate mortgage. The same principle applies if you're looking to buy a home, but maybe not quite ready yet. The higher interest rates go, the more you can expect your monthly payment to be.

Let's assume that you have a $250,000 loan amount at a current interest rate of 4.875% for a 30-year fixed and 4.375% for a 15-year fixed.

 

 

At current interest rate

+0.25% rate hike

+0.5% rate hike

0.75% rate hike

1.0% rate hike

30-year fixed

$1,323.02

$1,361.22

$1,399.93

$1,439.14

$1,478.84

15-year fixed

$1,896.55

$1,928.49

$1,960.74

$1,993.30

$2,026.16


If you want to figure out your payment yourself, there’s a really complicated algebraic equation that’s fairly hard to type into a calculator. As an example, let’s assume a $250,000 loan amount at 5% interest with a 30-year term.

P x (R / N) x (1 + R / N)(T)]

________________________

(1 + R / N)^N(T) – 1

P is principal, or your loan balance. The R is your base interest rate. If you see one interest rate next to an annual percentage rate (APR), the lower of the two is the one you want to use in this formula. N is the number of payments per year, usually 12. T is the term length in years.

If you can actually manage to get that all into a calculator, the number you should come up with is $1,342.05. If you have access to a spreadsheet program, it’s much easier to calculate this and even make amortization tables.

In Excel, you can use the PMT function with only three inputs: You need the loan balance, monthly interest rate (base interest rate divided by the number of payments per year) and total number of monthly payments (monthly payments in a year multiplied by the number of years in the term).

You can use a similar interest payment formula to determine how much monthly interest is paid. From there, you can subtract that from the total payment to get to the principal. You can use these formulas to form the basis of an entire amortization table if you choose so you can track your balance over time.

Not a numbers person? We don’t blame you for using an online mortgage calculator.

Where Does That Leave Those Who Are Hoping To Buy A Home?

If you’re buying a home, most experts believe that home prices and mortgage rates will continue to increase in the short term. The ongoing inventory issues mean that even as rates rise, there are strong seller’s market conditions that are going to continue to persist absent some dramatic shift in the market.

Adding an additional layer to this is that because rates are going up, it’s likely more people will try to buy sooner, which could make competition even heavier than it was last year.

Protect yourself from rising rates for 90 days.

Lock in today's rate with RateShield®.1

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Is This Market The New Normal?

An objective observer of the housing market would likely note that current market conditions aren’t likely to persist in the long term. There are a couple of reasons for this that I’ll touch on briefly:

  • Budgets aren’t unlimited. As interest rates rise, fewer people will be able to afford homes that grow more costly by the month. We haven’t hit the breaking point where prices are out of step with demand, but when that does happen, sellers will see their homes are on the market for longer periods of time and eventually lower their price to get a sale.
  • New construction is on the way. Lumber prices are starting to come down. In addition, builders are pulling more permits now compared to the same time last year, meaning there are big plans for future construction.

The Bottom Line

If you're looking to buy a home now, it's certainly a challenging market. Higher interest rates combined with higher prices together create quite an obstacle. While this won't last forever, it's not possible for anyone to say for certain when conditions will normalize.

With that said, there are situations in which you’ll want or need to buy a house now. It’s still extremely doable, and it’s a bonus if you lock in a lower interest rate before they rise further. To take advantage of today’s rates while you can, you can apply for approval online through our friends at Rocket Mortgage®. You can also give them a call at (833) 326-6020.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.