Home Prices Hit a Record High, With Smaller Gains Expected in 2022

  • U.S. home prices rose to another all-time high last month.
  • This follows a year of unprecedented price growth.
  • Several housing market forecasts predict slower growth in 2022.
  • Even so, the market will remain competitive for home buyers.

According to a recent housing market report, U.S. home prices rose to another all-time high in February. Strong demand from home buyers, combined with an ongoing supply shortage, have led to double-digit price gains over the past year.

The question is, will we see more of the same going forward?

According to a round of recent housing market forecasts, home-price growth could slow down in 2022. A number of forecasters, ranging from Freddie Mac to the National Association of Realtors, have predicted single-digit house price growth during 2022.

U.S. Home Prices Hit an All-Time Record High

Earlier this month, Realtor.com published a housing market report that revealed a continued rise in home prices. According to that report, the median list price in the U.S. rose to $392,000 in February 2022. That marked yet another all-time high for real estate list prices in the U.S.

According to the group’s chief economist, Danielle Hale:

“Over the last five years, we have seen home prices break records early in the season as buyers try to get ahead of the competition. But this is the first time the record has been broken in February, signaling that competition is already heating up weeks before the start of the Spring buying season in a typical year.”

The real estate data company Zillow also shows steady home-price growth over the past year. They recently reported that the median home value for the United States (different from the median list price mentioned above) rose to around $331,000. The median price increased by about 20% over the past year, according to Zillow.

All of which begs the question: what will home prices do for the rest of 2022? Will we see more of these double-digit gains, or will things cool down a bit? According to several housing market forecasts, home prices are expected to rise more slowly this year compared to last.

Several Forecasts Predict Smaller Gains in 2022

A number of real estate market forecasts published over the past few months have suggested that home prices in the U.S. will rise more slowly in 2022. That would be a much-needed change.

For example, Freddie Mac published a forecast in January suggesting that home prices would rise by around 6.2% in 2022. That would mark a significant reduction from the nearly 16% growth they estimated for 2021.

Fannie Mae, the other government-sponsored mortgage buyer, issued a similar forecast for home prices in 2022. The group’s Economic Strategic Research Group predicted that home prices would rise by 7.6% in 2022, followed by a gain of 3.3% in 2023.

(Historically, annual price growth between 3% and 5% is considered “normal.”)

And then there’s the Mortgage Bankers Association. According to the industry group’s Mortgage Finance Forecast for February, home prices are expected to climb by 5.1% to 2022. Looking beyond that, MBA predicts a gain of 4.1% in 2023.

Lastly, we have the National Association of Realtors (NAR). At the end of 2021, researchers from NAR surveyed 20 economic and housing experts regarding their 2022 outlook for the real estate market. The group predicted that home-price appreciation would normalize this year, with values rising 5.7% over the course of 2022.

Buyers Should Still Expect Stiff Competition

All this talk about home prices rising more slowly in 2022 might lead you to believe the real estate market is cooling down. And in a sense, it is. But the ongoing supply shortage will keep the housing market competitive for the foreseeable future.

A slowdown in home-price growth would be a good thing at this point, from an economic standpoint. The high double-digit gains of the past year are unsustainable for the long-term. Slower price growth would give incomes and wages a chance to catch up, thereby improving the affordability situation for home buyers nationwide.

Even so, we expect to see another year of stiff competition within the real estate market. This is largely due to the stark imbalance between supply and demand. You’ve probably heard that story before, so there’s no sense rehashing it here.

The bottom line is that there still aren’t enough homes on the market to satisfy the demand from buyers. As a result, the housing market will likely continue to favor sellers through most, or all, of 2022.

Disclaimer: This article includes home-price forecasts and predictions from third-party groups not associated with the publisher. The Home Buying Institute makes no assertions about future economic or housing trends.