Last week, we reported that several forecasters had predicted a slowdown in house prices for 2022. This seems to be the general consensus among many housing analysts, economists and industry watchers.
But a “slowdown” is not a turnaround. While home prices may rise more slowly over the next year, it is almost certain that they will continue to rise in most US cities.
A notable housing analyst offered a bolder outlook, predicting that home values ââwould continue to rise in double digits until 2022. He also described four specific reasons. Why Home prices in the United States will continue to rise in 2022.
Outlook: Home prices will continue to rise in 2022
As we mentioned in a previous report, some housing analysts estimate that the growth in house prices will slow significantly in 2022. For example, many forecasts suggest that prices nationwide will increase by about 5% l next year, compared to the high double-digit gains of 2021.
But not everyone shares this point of view. Some industry watchers believe home prices will continue to rise double-digit 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 caused home prices to skyrocket in the United States. He is the director of the Housing Center at the American Enterprise Institute and the former director of credit for mortgage buyer Fannie Mae.
In other words, it knows the housing market.
Pinto recently predicted that home prices would continue to rise in double digits (year over year) until the first half of 2022 – and possibly beyond. In an article posted on the American Enterprise Institute’s website, Pinto said:
“By June or July [home price] the appreciation will always be in the double digits or just under 10%. The average for all of 2022 would be 10% to 11%; it could even be 12%.
And Pinto isn’t alone in his double-digit outlook. Real estate data company Zillow also estimates that US house prices will continue to rise by double digits until 2022.
In early November, Zillow’s website offered the following prediction:
“Home values ââin the United States have increased 18.4% in the past year and Zillow predicts that they will rise 13.6% next year.”
The chart below, provided by Zillow, shows that US house prices go back almost a decade. You can see how the appreciation has accelerated significantly in 2021. The green shaded area shows the outlook for the business for the next 12 months or so.
So what’s behind these bold forecasts for 2022? Let’s take it up a notch and take a look at some of the reasons Why prices should continue to rise.
4 factors that increase home values
In addition to predicting that home prices will continue to rise steadily in 2022, Pinto highlighted four factors that will make such a trend likely. They include low mortgage rates, relaxed lending standards, tight inventories, and the increase in COVID-induced remote working.
1. Low mortgage rates
Three years ago, in the fall of 2018, a mortgage rate of 4.8% to 5% was considered a âgood dealâ. But the rates have since dropped considerably.
The average rate on a 30-year fixed-rate mortgage has hovered below 3% for much of 2021. It stood at 3.09% in the first week of November, according to Freddie Mac .
And while rates are expected to increase in 2022, they’re still very low when measured against historical standards. This is in part due to the Federal Reserve’s current monetary policy, which is to keep the short-term fed funds rate close to zero.
Or as Pinto put it, âThe Fed keeps increasing the monetary punch bowl, and that’s driving a lot of demand. “
Low mortgage rates and the resulting demand among buyers are just one of the reasons home prices are likely to continue to rise in 2022.
2. Relaxed mortgage standards
Mortgage lending standards have eased somewhat over the past year, according to numerous reports. Freddie Mac and Fannie Mae (the government-sponsored agencies that guarantee most American home loans) are relaxing their standards.
âIt creates more leverage for buyers,â Pinto explained. “This is another punch bowl that has even more demand.”
3. A permanent shortage of stock
Tight inventory conditions in the housing market are another reason home prices are expected to continue to rise in 2022. And that doesn’t need to be covered. Supply shortages have generated countless news headlines over the past year.
There are several reasons for the continued shortage of stocks. The lack of construction is one of them. New home construction started to rebound earlier in 2021. But supply chain issues and other issues have held back that trend.
Even if the construction Is ramp up in the coming months, as some believe, this will not be enough to completely solve the supply shortage. This is the third reason that home prices are likely to continue to climb in 2022.
4. The trend of telecommuting
Finally, we have the rise of remote work. The homework revolution has boosted the housing market in several ways. Mainly, it has given people a new freedom to choose where they live.
Remote workers who previously had to rent due to high housing prices close to their workplace can now migrate to more favorable housing markets. This has resulted in an increase in purchasing activity over the past year.
A worker from Manhattan or San Jose, for example, could move to a city like Phoenix and get a lot more housing for their money. In addition to boosting sales, this trend has put constant upward pressure on prices.
Disclaimer: This article includes forecasts regarding house prices and other housing conditions. These forecasts were issued by third parties not associated with the publisher.