Will Real Estate Values Return to Earth in 2022?
Property prices have risen to unprecedented levels in 2021.
Real estate values have been growing at double-digit rates nearly every month, creating "one of the most resilient seller's markets in a generation," according to Frank Martell, CoreLogic's president and CEO.
However, this year should offer a bit of a breather for those looking to buy their first home.
The rate of price growth is projected to slow through 2022 and even return to pre-pandemic normal by late summer.
Home prices will still rise, but by fall the pace could slow to a fraction of what it was at the end of 2021.
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A sunnier forecast for first-time homebuyers
Intense demand and bidding wars led to the astronomical rise in home prices that defined 2021.
The housing market is still stretched, but consumers should find some more footing behind a calming pace of appreciation in 2022.
CoreLogic's most recent Home Price Index (HPI) report showed an 18.1% annual increase in November 2021 — its highest-ever reading, dating back to when the company began tracking in 1976 — and forecast an average Growth of 14.9% for the year (December data not yet in).
For comparison, the previous five years have never exceeded an average of 6%:
2016: 5.4%2017: 5.8%2018: 5.7%2019: 3.9%2020: 5.9%
The 2022 forecast moves much closer to pre-Covid times, almost halving 2021 by half and falling to an average of 7.9%.
The price increase could drop to the 2% area
The HPI forecast gradually declines throughout the year, falling to 2.8% in November.
CoreLogic points to two main factors that will slow the pace of home prices: affordability issues and supply gains.
"The slowdown represents a weakening of buyer demand that reflects the erosion of affordability due to high prices and our forecast of rising mortgage rates," said Frank Nothaft, chief economist at CoreLogic.
"And more inventory for sale from single-family builds and more existing owners moving," he adds.
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Buyer demand is already slowing
Recent buyer demand has already started to show moderation.
Mortgage lockdowns for purchases fell 25.2% in December from September and 22.5% from November, according to Black Knight's Originations Market Monitor, as rates rise and seasonal slowdown.
Additionally, the Fannie Mae Home Purchase Sentiment Index fell in December as more consumers felt constrained by a lack of affordability as homes were bid at record highs.
While "affordability is likely to be a growing challenge," Doug Duncan, SVP of Fannie Mae and chief economist, "expects an increase in new homes to come later in 2022."
Example house price growth
Home buying is set to have another strong year in 2022, so it's important not to confuse a slowing rate of appreciation with an absolute turnaround.
Prices won't go down this year, but the amount they're going up should.
If we follow CoreLogic's numbers, they paint a clearer picture of how the price of a $300,000 house is changing and what it's valued at through November:
Nov 2020 house price: $300,000 Nov 2021 house price with 18.1% annual HPI: $354,258 Nov 2022 house price with 2.8% annual HPI: $364,317 price change from 2020 to 2021: $54,258 price change from 2021 to 2022: $10,059
As you can see, this sample home is still increasing in value in 2022, just by a much more palatable amount for buyers.
What are mortgage rates today?
Of course, as long as you can afford it, "there's never a bad time to buy," according to loan expert and licensed MLO Jon Meyer of The Mortgage Reports.
While the pace of house price growth should slow over the course of 2022, interest rates are expected to do the opposite.
Checking your mortgage eligibility and contacting a lender can help you figure out when home buying might be right for you and what you can afford.
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