Last week, we reported that several forecasters had predicted a slowdown in home prices for 2022. That seems to be the general consensus among many housing analysts, economists and industry watchers.
But a “slowdown” is not a reversal. While home prices might rise more slowly next year, it’s almost certain they will continue to climb in most U.S. cities.
One notable housing analyst offered a bolder outlook, predicting that house values would keep rising by double digits well into 2022. He also outlined four specific reasons why U.S. home prices will keep rising in 2022.
Outlook: Home Prices Will Keep Rising in 2022
As we mentioned in a previous report, some housing analysts believe that home-price growth will slow significantly in 2022. For instance, numerous forecasts suggest that prices nationwide will rise by around 5% next year, compared to the high double-digit gains of 2021.
But not everyone shares that view. Some industry watchers believe that home prices will keep rising by double digits in 2022 — or at least for the first part of it.
Ed Pinto is one of those analysts. Pinto is known for predicting the current real estate boom that has sent home prices skyrocketing across the U.S.. He’s the director of the American Enterprise Institute’s Housing Center, and the former chief credit officer for the mortgage buyer Fannie Mae.
In other words, he knows the housing market.
Pinto recently predicted that home prices will keep rising by double digits (year-over-year) into the first half of 2022 — and possibly beyond. In an article published on the American Enterprise Institute website, Pinto stated:
“by June or July [home price] appreciation will still be in the low double-digits or just below 10%. The average for all of 2022 would be 10%-11%; it might even be 12%.”
And Pinto’s not alone in his double-digit outlook. The real estate data company Zillow also believes that U.S. house prices will keep rising by double digits well into 2022.
In early November, Zillow’s website offered the following prediction:
“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.”
The chart shown above, provided by Zillow, shows U.S. house prices going back nearly a decade. You can see how appreciation accelerated significantly during 2021. The green shaded area shows the company’s outlook for the next 12 months or so.
So, what’s behind these bold forecasts for 2022? Let’s shift gears and look at some of the reasons why prices are expected to continue climbing.
4 Factors That Are Boosting House Values
In addition to predicting that home prices will keep rising steadily in 2022, Pinto outlined four factors that will make such a trend likely. They include low mortgage rates, relaxed lending standards, tight inventory, and the COVID-driven rise of remote work.
1. Low mortgage rates
Three years ago, during the fall of 2018, a mortgage rate of 4.8% to 5% was considered a “good deal.” But rates have fallen considerably since then.
The average rate for a 30-year fixed mortgage loan hovered below 3% for much of 2021. It sat at 3.09% during the first week of November, according to Freddie Mac.
And while rates are expected to inch upward in 2022, they’re still very low when measured by historical standards. This is partly due to the Federal Reserve’s current monetary policy, which involves keeping the short-term federal funds rate near zero.
Or as Pinto put it: “The Fed continues to spike the monetary punch bowl, and that’s leading to lots of demand.”
Low mortgage rates, and the resulting demand among buyers, is just one reason why home prices will likely keep rising in 2022.
2. Loosened mortgage standards
According to numerous reports, mortgage lending standards have eased a bit over the past year. Freddie Mac and Fannie Mae (the government-sponsored agencies that guarantee most of America’s home loans) are loosening their standards.
“That’s creating more leverage for buyers,” Pinto explained. “It’s another punch bowl that stirs still more demand.”
3. An ongoing inventory shortage
Tight inventory conditions within the housing market are another reason home prices should keep rising in 2022. And this topic needs no introduction. Supply shortages have generated countless news headlines over the past year.
There are several reasons for the ongoing inventory shortage. A lack of construction is one of them. New home construction started to rebound earlier in 2021. But supply-chain snags and others issues have put a damper on that trend.
Even if construction does ramp up over the coming months, as some believe it will, it won’t be enough to fully resolve the supply shortage. That’s the third reason why home prices will probably keep climbing in 2022.
4. The work-from-home trend
Lastly, we have the rise of remote working. The work-from-home revolution has spurred the housing market in several ways. Mainly, it has given people a newfound freedom to choose where they live.
Remote employees who previously had to rent due to high home prices near their work locations can now migrate to more favorable housing markets. This has led to a surge in buying activity over the past year.
A worker from Manhattan or San Jose, for example, could relocate to a city like Phoenix and get a lot more house for the money. In addition to boosting sales, this trend has put steady upward pressure on prices.
Disclaimer: This article includes predictions for home prices and other housing-related conditions. Those forecasts were issued by third parties not associated with the publisher.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author