The housing market will cool off in 2022, but not by much, according to Fannie Mae.
Over the past year, U.S. home prices are up a record 19.8%. You don’t need to be an expert to understand that the current level of growth – faster than the lead up to the 2008 financial crisis – isn’t sustainable.
But where will this historically competitive housing market go next? According to the latest forecast put out by Fannie Mae, median home prices are expected to rise 7.9% between the fourth quarter of 2021 and the fourth quarter of 2022. While that would mark a slowing from
the exponential price growth we saw in 2021, it would still represent strong growth historically. (On average, U.S. home prices have climbed 4.1% on an annual basis since 1987.) So, put another way: The housing market, according to Fannie Mae, is set to return to a relatively normal level of price appreciation.
Fannie Mae also expects mortgage rates to climb next year, with the
average 30-year fixed-rate rising from 3.1% to 3.4%. Though the downward pressure on prices from rising rates, the government-sponsored enterprise says, won’t be enough to pull prices down.
“Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022, limiting interest rate effects on home sales and home prices,” wrote Doug Duncan, chief economist at Fannie Mae, in its latest 2022 real estate market outlook.
As far as 2022 real estate market outlooks go, Fannie Mae’s forecast is right in the middle of the spectrum. On the bullish end are Zillow and Goldman Sachs. In the coming 12 months, Zillow foresees U.S. home prices jumping 13.6%. Meanwhile, Goldman Sachs expects home prices to swing up a staggering 16% by the end of 2022. But not everyone sees the frenzy continuing: CoreLogic, a real estate data firm, is far more bearish—forecasting just 2.2% home price growth over the coming 12 months.
Of course, all of these forecasts should be taken with a grain of salt. After all, at the beginning of the pandemic — when some states had banned in-person real estate showings — CoreLogic forecast prices would fall 1.3% between April 2020 and April 2021. For that same 12-month period, Zillow predicted home prices would fall between 2% to 3%. Not only did the housing market not slide backward, but it also went on one of the biggest runs in U.S. history.