Real Estate Housing Market Predictions for the Second Half of 2022

The general economy — and the real estate housing market — have been a focus of news cycles for months. Since 2020, home prices have skyrocketed. Due to a reduced housing inventory, individuals seeking to buy a home often compete with numerous other potential buyers. However, rising inflation and interest rates have put a damper on the excitement, and people all over the country are wondering what to expect of the real estate housing market for the remainder of the year. Here are our top five predictions.

1. Home Prices Will Continue To Appreciate, but at a Slower Rate

Homeowners can expect their property values to continue to gain traction over the next six months. Realtor.com predicts that home prices will be up 6.6% compared to last year [1]. While the growth may not be as much as last year’s record-breaking 16.9%, the housing market isn’t stalling anytime soon [2].

Some potential homebuyers may be concerned about the increasing prices of homes. After all, combined factors of higher gas prices, inflation, and interest rates are enough to put a severe dent in the wallet. However, ignoring economic market factors and considering one’s budget is often better than attempting to time the market [3].

2. Interest Rate Increases Will Persist

Rising inflation is a continuing headache not expected to decrease before the end of the year. To counter inflation, the Federal Reserve has hiked interest rates twice this year. Most economists predict several more increases in the coming months. Kiplinger expects five more interest rate hikes by the end of December, culminating in a 3.25% federal interest rate at year-end [4].

Higher interest rates make it more expensive to purchase a home. Individuals seeking to get more for their money may choose less expensive mortgage loans, such as adjustable rate mortgages (ARMs), instead of the traditional 30-year fixed-rate loan.

3. A Crash in the Housing Market Is Unlikely

Predictions of a potential economic recession have dominated news cycles for weeks. Those who experienced the Great Recession likely remember the housing crisis, which culminated in a housing price bubble. Large segments of the housing market felt the impact when the real estate housing bubble finally burst. However, today’s situation is much different from 2005-2012. Factors that drove the housing bubble to explode, such as poor regulation and easy lending through sub-prime mortgages, aren’t the case today [5].

New regulations established during the Great Recession prevent predatory lending practices [5]. Banks are subjected to much more oversight [5]. While housing prices have significantly increased since 2020, most economists believe a lower supply of inventory is driving the increase, not a housing bubble [3].

4. Oversupply Will Keep the Housing Market Competitive

Due to ongoing lockdowns and supply chain factors, the Covid-19 pandemic led to reduced construction in the housing market. The decreased number of new housing starts over the past two years has led to less availability of housing inventory. There simply aren’t enough homes on the market to support current demand.
Fannie Mae predicts an overall reduction in housing starts for 2022 of -4.8% [6]. However, Fannie Mae expects the construction of multifamily units to increase by 5.9% for the year [6]. A reduced supply of available housing inventory will keep the real estate housing market competitive as homebuyers compete to purchase a new place they can call home.

5. Greater Homebuyer Interest in Less Expensive Cities

Various factors, including higher housing prices, better opportunities for remote work, and a desire to reduce household costs, have led many people to look for less expensive areas to live in [7]. Average home prices topping $1.5 million in San Francisco encourage potential buyers to seek cheaper alternatives elsewhere [7].
Despite the high salaries in large cities such as Los Angeles, New York, and Washington, D.C., many individuals can’t afford to live there anymore. In New York City alone, rents are up 41% since last year [7].

Those seeking more affordable places to live — and a higher quality of life — are turning to cities including Miami, Tampa, Phoenix, and Las Vegas [7]. While these Sun Belt cities have also seen higher housing prices since 2020, they are much cheaper than large metropolitan areas such as Boston.

The Takeaway

While the news often paints a grim picture of the economy, it isn’t all bad. We predict that demand for housing will continue to increase over the remainder of 2022 due to reduced supply in the market. Homebuyers should expect further boosts to home prices, and rising interest rates will make homes less affordable. Those seeking better value may look for buying opportunities outside the higher-priced metropolitan areas. Concern about a potential market crash is unwarranted due to regulatory corrections made following the Great Recession. As always, personal circumstances and budget should be the prime deciding factor when looking for a new home.

This article is intended to be accurate, but the information is not guaranteed and situations vary from person to person. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional.

The article is provided by Sparkling Marketing, Inc.