Will houses in the U.S. get cheaper in 2022? Or will housing affordability continue to fall as prices climb?
This is a common question among future home buyers, as we approach the last two months of the year. It’s also a tough question to answer across the board, because real estate conditions can vary from one city or region to the next.
In short: All of the forecasts we’ve encountered in recent weeks predicted that home prices in the U.S. will continue to climb next year. That means houses probably will not get any cheaper in 2022. But those forecasts apply to the nation as a whole (i.e., most U.S. cities). In some local housing markets, prices could actually level off or even dip in 2022.
Will Houses Get Cheaper in 2022?
As we wrote in a recent report, home prices in the U.S. have risen much faster than normal over the past 15 months. If you look back over the past 40 years (and filter out the extremes of booms and busts), you’ll find that home prices in the U.S. tend to rise between 3.5% – 5% annually.
But over the past year, U.S. home prices rose more than 18% according to Zillow.
The sharp rise in house values has pushed some buyers out of the market entirely. In many U.S. cities, declining affordability has made it hard for an average earner to afford a median-priced home.
Many folks are now wondering: Will houses get cheaper in 2022?
Unfortunately, that doesn’t seem likely. Not for most cities, anyway. The general consensus among housing analysts and economists is that house prices will continue rising for the foreseeable future.
In October of 2021, for example, the real estate data company Zillow made the following statement:
“United States home values have gone up 18.4% over the past year and Zillow predicts they will rise 13.6% in the next year.”
Other forecasters, such as those from the mortgage buyer Freddie Mac, have also predicted that house prices will keep rising. But Freddie Mac issued a more modest outlook, compared to Zillow’s.
In mid-October, Freddie Mac’s researchers wrote:
“Additionally, we forecast house price growth of 16.9% in 2021. However, we expect house price growth to slow to 7.0% in 2022.”
A few important caveats should be mentioned here:
- The above quotes relate to the country as a whole, and median home prices.
- Housing forecasts like these are far from certain. They’re an educated guess.
- Real estate conditions can vary widely from one city or metro area to the next.
- Some cities in the U.S. could experience a decline in house prices in 2022.
- But in most local housing markets, home values will probably keep climbing.
Supply and Demand Is Still ‘Lopsided’
Getting back to the question at hand: Will houses get cheaper in 2022?
If these and other predictions are any indication, the answer would be “no.” Or at least “probably not.”
The reason why houses probably won’t get any cheaper in 2022 has to do with supply and demand. And don’t worry, I’ll spare you the Economics lesson.
The short version is this: In most housing markets across the country, the demand from home buyers exceeds the available supply. There just aren’t enough houses on the market to meet the demand. You’ve probably heard all of this before — it has been the big housing news headline for well over a year now.
So, we still have steady demand among home buyers. And we still have an ongoing supply shortage within the real estate market. When demand greatly exceeds supply, prices tend to climb. This is true for everything from peanut butter to gasoline to houses.
There Is Some Good News for Buyers
It’s not all bad news for home buyers. Granted, those who postpone their purchases until later next year will probably pay more. As we’ve already established, it’s unlikely that houses will get cheaper in 2022.
But there might be an upside to buying a home next year versus now. For one thing, the housing market might be a bit less competitive in 2022. Bidding wars might become less common. We outlined the reasons for this in a separate article.
Additionally, buyers might have more homes to choose from next year, when compared to the current inventory situation.
A September 30th report from Realtor.com stated:
“New housing data shows inventory hit a 2021 high in September, giving buyers more choices than they have had all year…”
This trend is partly due to an increase in the number of recent listings in cities across the U.S. While the market will probably favor sellers over buyers for the foreseeable future, it’s nice to see some good news regarding the inventory crunch.
But to revisit the theme of this article, it seems unlikely that houses will get any cheaper in 2022.
Disclaimer: This article contains forward-looking views (including forecasts) relating to the housing market. Such views are the equivalent of an informed opinion and therefore far from certain.