Economists predict slower price appreciation, easing inflation, and rising interest rates during NAR’s virtual Real Estate Forecast Summit.

While strong homebuyer demand and inventory shortages will continue into 2022, the housing market is unlikely to repeat this year’s dizzying heights, in which existing-home sales reached their highest point in 15 years with an estimated 6 million sales. Slower growth in home prices, decelerating inflation, and multiple interest rate hikes by the Federal Reserve could contribute to a more normal housing market in the new year, National Association of REALTORS® Chief Economist Lawrence Yun said Wednesday during NAR’s virtual Real Estate Forecast Summit. Yun presented a consensus real estate forecast based on a survey of 20 leading economists.

For 2022, the group of experts predicts that annual median home prices will increase 5.7% and inflation will rise 4%. “Overall, survey participants believe we’ll see the housing market and broader economy normalize next year,” Yun said. In addition, Yun expects existing-home sales will decline to 5.9 million in 2022 and housing starts will increase modestly to 1.67 million as the pandemic’s supply chain backlogs subside.

Housing Affordability Remains a Concern

Even if the market begins to settle down, affordability issues likely will continue to dampen homebuying prospects for many would-be owners. Housing affordability had already reached crisis levels before the pandemic added to the strain, said Todd M. Richardson, general deputy assistant secretary at the Department of Housing and Urban Development’s Office of Policy Development and Research.

However, the Biden administration’s Build Back Better plan offers several programs that have the potential to increase housing access for all. The bill provides $10 billion in down payment assistance for first-generation home buyers, $24 billion for housing choice voucher rental assistance, and $15 billion for the Housing Trust Fund to build and preserve over 150,000 affordable homes for low-income households. “Our programs are about unlocking possibilities,” said Richardson. “Support is needed most for housing in low- to moderate-income communities.”

Manufactured housing offers a potential source of inventory that could help ease the housing crunch. Affordable entry-level homes continue to be among the units in shortest supply, and modern manufactured housing—with its high-quality factory construction and lower per-unit cost—could help fill in some of the gaps, said Lesli Gooch, CEO of the Manufactured Housing Institute. In addition, manufactured homes could offer wealth-building opportunities for buyers. “Research by LendingTree shows that, from 2014 to 2019, the median value of manufactured homes increased by 40%—six points above site-built homes,” said Gooch.

Naa Awaa Tagoe, acting deputy director at the Division of Housing Mission and Goals at the Federal Housing Finance Agency, seconded the call for more affordable housing and shared her agency’s strategies in 2022 for increasing equitable access to homeownership and rentals. Appraisal efficiency, small-balance mortgage purchases and refinances, and low-income housing tax credits are among the division’s top priorities for 2022, said Tagoe.

Regional Differences Could Affect the Housing Market

Housing prices are likely to moderate nationwide, but regional variation could occur in 2022. Overpriced areas with lower predicted population growth will experience a greater slowing of prices compared to those with higher predicted growth, said Ken H. Johnson, associate dean of graduate programs at Florida Atlantic University. “Everyone will experience moderation, but there will be differences,” he said.

Strong building starts in the suburbs could be good news for first-time buyers. Businesses are competing for workers right now, said realtor.com® Chief Economist Danielle Hale, and that means buyers could have more flexibility in choosing where they live. In contrast to Yun, who saw “hidden gem real estate markets” in the South, Hale counseled would-be buyers to look further north. “The Mountain West, pockets of the Northeast, South, and Midwest are all locations where affordability creates incentives,” said Hale.

Demographics Offer Insight Into the Future

Jessica Lautz, NAR’s vice president of behavioral insights and demographics, offered highlights from the 2021 Profile of Home Buyers and Sellers, noting several demographic trends that will continue to affect the housing market into 2022 and beyond:

• Baby boomers want to age in place and will continue to hold onto their homes, contributing to the ongoing inventory shortfall.
• Millennials are the largest generation of potential buyers, but they face significant headwinds, such as low inventory, high prices, and student loan debt.
• A drop in the birth rate to a 100-year low could contribute to continued stagnation in the market: The birth of a child is often a motive to buy, and a child moving out is often an impetus to downsize and sell.

Commercial Offers Opportunities for Growth

Commercial experts on the panel offered their predictions for 2022:

• Multifamily: Rents will likely continue to increase, though part of that accounts for a continued correction from the declines in 2020. Rental units, like single-family homes, are in short supply, and ramping up construction could alleviate some of the strain.
• Industrial: Despite a drop in cap rates, industrial will continue to thrive, with retailers leasing more warehouse space to hold inventory and manufacturers increasing production in the U.S.
• Retail: Brick-and-mortar stores will attract foot traffic with innovations such as livestreaming of products, custom concierge services, and curated local offerings.
• Hotels and lodging: Hotels will continue to struggle with a labor shortage that is affecting capacity. The industry needs to get out the message that hotel jobs are steady, provide good pay, and offer upward mobility.
• Office: This sector is still in the middle of its recovery. The stage is set for growth in the second half of 2022, with central city cores emerging as important hubs for workers commuting from greater distances.

National Association of REALTORS®
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The Consumer Financial Protection Bureau and the Justice Department issued letters to mortgage servicers and housing providers reminding them that military and veteran families who are leaving pandemic-related forbearance plans or renters leaving moratoriums have extra protections under law. They want to ensure that military families and vets are not illegally evicted or foreclosed on.

Service members and vets have extra protections under the Servicemembers Civil Relief Act. That law protects certain servicemembers’ mortgages from being foreclosed upon or the eviction of military families from their homes without court orders. It also allows military families to terminate residential leases early and without penalty when receiving military orders.

The letters from CFPB and DOJ come in response to growing reports of complaints from military families and veterans who have alleged numerous mortgage servicing violations, including inaccurate credit reporting, misleading communications to borrowers, and required lump sum payments for reinstating their mortgage loans.

“The illegal foreclosures of military families in the last crisis was one of the financial industry’s worst failures,” Rohit Chopra, CFPB director, wrote in a statement. A decade ago, mortgage servicers were accused of not following additional protections for military servicemembers and vets, which resulted in numerous settlements with regulators, including a $186 million settlement between the DOJ and some of the nation’s largest mortgage servicers. “The CFPB will be closely watching mortgage servicers and will hold them accountable for illegal tactics perpetuated against military families,” Chopra says.

About 1.25 million borrowers—many of whom are military borrowers—remain in forbearance programs that will expire at the end of the year, CFPB says in a news release.

“The Department of Justice takes seriously its responsibility to safeguard the rights of servicemembers and veterans,” says Kristen Clarke, assistant attorney. “While servicemembers carry the great burdens of this nation, they should not have to worry that their sacrifices will result in economic harm to their families. Mortgage servicers and landlords must ensure that they are in full compliance with federal laws intended to protect servicemembers and their families during military service.”

National Association of REALTORS®
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Home buyers may have felt more determined in November to purchase before 2021 comes to an end and mortgage rates and borrowing costs increase, as largely is forecasted to happen.

Existing-home sales, which include completed transactions for single-family homes, townhomes, condos, and co-ops, rose 1.9% in November compared to October, the National Association of REALTORS® reported Wednesday. Sales, however, are down 2% compared to a year ago.

“Determined buyers were able to land housing before mortgage rates rise further in the coming months,” says Lawrence Yun, NAR’s chief economist. “Locking in a constant and firm mortgage payment motivated many consumers who grew weary of escalating rents over the last year. Mortgage rates are projected to jump in 2022. However, I don’t expect the imminent increase to be overly dramatic.”

Yun has forecast the 30-year fixed-rate mortgage to average 3.7% by the end of 2022. For comparison, Freddie Mac reported 30-year rates averaged 3.12% last week.

Here’s a closer look at key housing indicators from NAR’s latest housing report, reflecting November home sales data:

Home prices continue to rise—but likely not at this pace much longer: The median existing-home price for all housing types was $353,900 in November, up 13.9% from November 2020. Prices rose in every major region of the U.S., with the South registering the highest appreciation in home prices.

Yun expects that inflation and the pace of price appreciation will subside in 2022. Economists at the NAR’s third annual Real Estate Forecast Summit predicted home price increases to moderate at 5.7% next year. Read more news from NAR’s forecast summit: Housing Market Likely to ‘Normalize’ in 2022

Housing inventories move even lower: The number of homes for sale fell 9.8% in November compared to October, and are down 13.3% compared to a year ago. Unsold inventory sits at a 2.1-month supply at the current sales pace. “Supply-chain disruptions for building new homes and labor shortages have hindered bringing more inventory to the market,” Yun says. “Therefore, housing prices continue to march higher due to the near-record-low supply levels.”

Homes continue to sell fast: Eighty-three percent of homes sold in November were on the market for less than a month. Properties typically stayed on the market for just 18 days in November, the same as October but down from 21 days in November 2020.

Investors remain a strong presence: Individual investors or second-home buyers purchased 15% of homes in November, up from 14% a year ago. They also tend to account for the biggest bulk of all-cash sales, which made up 24% of transactions in November. Meanwhile, first-time home buyers continue to struggle to compete. They comprised 26% of sales in November, down from 32% a year earlier.

Regional Breakdown

Here’s a closer look at how existing-home sales fared across the country in November, according to NAR’s sales report:

Northeast: Existing-home sales held steady in November compared to October at an annual rate of 760,000. Sales were down 11.6% compared to November 2020. Median price: $372,500, up 4.7% from one year ago

Midwest: Existing-home sales eked out a 0.7% monthly increase to reach an annual rate of 1.52 million in November. That is down 0.7% from a year ago. Median price: $260,100, a 9% jump from November 2020

South: Existing-home sales increased 2.9% in November, reaching an annual rate of 2.85 million. That marks a 1.1% increase compared to a year ago. Median price: $318,900, up 18.4% compared to a year ago

West: Existing-home sales rose 2.3% in November compared to October, reaching an annual rate of 1.33 million. Sales were down 3.6% compared to a year earlier. Median price: $507,200, up 8.4% from November 2020

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Home prices are rising by double-digit numbers, causing increasing concerns around housing affordability. The Commerce Department reported that median sales prices for new homes rose nearly 19% in November, while the National Association of REALTORS® reported existing-home prices jumped by a median of 13.9% annually last month.

As home prices press higher, so is the amount that home buyers are borrowing to pay for a house. The average amount borrowed to finance a home purchase climbed to $414,115 in November, the Mortgage Bankers Association reports.

Housing analysts say a lot of the housing activity lately has been concentrated on the higher end, which could be skewing mortgage amounts higher. But higher home prices and bidding wars have prompted many buyers to stretch their budgets.

Down payments have also gotten higher. The national median down payment recently hit its highest level since at least 2005, ATTOM Data Solutions reports. The median down payment on a single-family home purchased with financing in the third quarter was $27,500, up 41% from $19,502 in the third quarter of 2020.

Many financing experts recommend that housing costs—including mortgage payment, property taxes, insurance, and other recurring housing expenses—not exceed 30% of take-home pay.

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Mortgage rates stayed low for the final week of 2021, but housing analysts largely predict rates will be heading up in the coming weeks.

“Mortgage rates have been effectively been moving sideways despite the increase in new COVID cases,” says Sam Khater, Freddie Mac’s chief economist. “This is because incoming economic data suggests that the economy remains on firm ground, particularly cyclical industries like manufacturing and housing. Moreover, low interest rates and high asset valuations continue to drive consumer spending. While we do expect rates to rise, the push the first-time home buyer demographic that’s been propelling the purchase market will continue in 2022 and beyond.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Dec. 30:

• 30-year fixed-rate mortgages: averaged 3.11%, with an average 0.7 point, rising from last week’s 3.05% average. Last year at this time, 30-year rates averaged 2.67%.
• 15-year fixed-rate mortgages: averaged 2.33%, with an average 0.7 point, up from last week’s 2.30% average. A year ago, 15-year rates averaged 2.17%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.41%, with an average 0.5 point, increasing from last week’s 2.37% average. A year ago, 5-year ARMs averaged 2.71%.

Freddie Mac reports national commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

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Conforming loan limits for mortgages backed by Fannie Mae and Freddie Mac have jumped in most of the country to $647,200, an increase of $98,950 from 2021’s limit of $548,250. The higher levels are in response to rising home prices over the past year.

The new loan limits took effect Jan. 1.

The Federal Housing Finance Agency’s House Price Index shows that home prices rose 18.05%, on average, between the third quarters of 2020 and 2021. The 2022 conforming loan limits increased by the same percentage, the FHFA reports.

However, in areas where the local median home value exceeds the baseline conforming loan limit, the limits have risen more, the FHFA says. In higher-priced locations such as San Francisco and New York, the conforming loan limits for 2022 increased to $970,800. In 2021, that baseline was $822,375.

Find out the conforming loan limit for 2022 in your area at FHFA.gov.(link is external) You can also view the interactive map(link is external) below on the site.

Find out the conforming loan limit for 2022 in your area at FHFA.gov.(link is external) You can also view the interactive map(link is external) below on the site.

National Association of REALTORS®
Reprinted with permission