Greg Englesbe
Real Estate Investing

Will the U.S. housing market come back to Earth in 2022?

The start of 2022 comes with a fresh reminder that the coronavirus pandemic is still evolving with the emergence of the omicron variant. COVID-19 continues to be a disruptive force in public health and the economy.

It came as a surprise to some that the pandemic, rather than send the U.S. housing market into a tailspin, became a catalyst for a surge in activity driven by a combination of low interest rates, low housing inventory and sudden flexibility for many would-be home buyers to think bigger about where they want to live and invest in a more virtual society.

These factors all created upward pressure on home prices in 2021, which appreciated by 18.5% year-over-year in the third quarter, a record for the Federal Housing Finance Agency’s House Price Index.

Other macroeconomic constraints also have contributed to the sellers’ market that thrived on hyper-competitive bidding wars, particularly during the first half of 2021. The nation’s existing-home supply was already historically low, but the high cost of materials for new home construction, lumber above all else, has translated to the median price of such homes, which hit $407,700 in October, up 17.5% from the year before.

The cherry on top is the high inflation rate in the U.S., which surged to 6.8% in November, the highest it has been since 1982. That makes affording a down payment more difficult, especially for younger, first-time home buyers who already had limited listings at their disposal.

So what can we anticipate for 2022? Have many of these factors changed, or are they likely to any time soon.

“Much of what drove high price growth this year will follow us into next year,” Nicole Bachaud, an economist at Zillow, told Forbes Advisor. “We will expect to see prices rising at extremely high levels for the first few months of 2022 before beginning to taper off towards more normal levels.”

It was believed that if the pandemic slowed down and showed signs of long-term stability moving into the new year, then people would be more prepared to return to big, congested cities. If that were to happen, we might see less upward price movement for suburban homes and properties in smaller, attractive cities like Boise, which proved to be one of several real estate hot spots over the last year.

But with omicron spreading faster than any previous COVID-19 variant and an inconclusive picture of its looming impact, that possibility seems less likely to start the year. Meanwhile, the national average rental price for a one-bedroom apartment jumped 21.3% in October, compared to a year ago, and more than 16.7% for a two-bedroom apartment.

There’s been an assumption that interest rates will increase from around the 3.1% for a 30-year, fixed-rate mortgage next year, which could dampen home prices. Redfin and both have predicted that will rise to about 3.6% by the end of next year, enough to potentially discourage speculative buyers without quite stopping price growth in light of the ongoing supply constraints.

Zillow analysts currently project that home values will increase by about 11% in 2022. That would be slower growth than this year, certainly, but not exactly the landing that home buyers might like to see if they’re hoping to make a move. Those who have been patient and saved while waiting out this year may find it an easier market to navigate, however.

The reality appears to be that the turn of the calendar year is mainly a symbolic marker and metric we use to assess changes. The factors that have made this market what it is today are expected to soften somewhat, but those hoping for a dramatic swing shouldn’t expect too much in 2022 and should plan accordingly to figure out where, when and how to deploy their resources.

Photo credit MIX Company/

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