2022 Real Estate Market Forecast: What’s Next?

The U.S. housing market is undergoing a rebalancing. Visit HomeLight’s 2022 Housing Trends Hub for information on how to navigate a shifting market — whether you’re a seller, buyer, or homeowner.

If you’re thinking about jumping into the real estate market in 2022, it may feel like the ground is shifting underneath your feet. And mixed messages have rumbled throughout the market to this point.

So far, home prices are holding relatively steady — even as mortgage rates rise. Demand hasn’t collapsed, even as inflation pressures weigh down buyers. Still, the housing market is poised to shift throughout the rest of the year, and buyers or sellers who spot the market’s direction now can gain more on their investments in the future.

For this updated 2022 housing market forecast, we gathered insights from two market experts: Ken H. Johnson, Ph.D., a real estate economist and associate dean of graduate programs at Florida Atlantic University, and Kurt Buehler, a top real estate agent who has been selling homes in the Dallas-Fort Worth area for more than 30 years.

Here’s how the experts see the real estate market changing in 2022, and what those changes mean for buyers and sellers.

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What to expect from the real estate market in 2022

As a buyer or seller, there may be a lot riding on the decisions you make throughout the rest of 2022. And housing experts see the real estate market moving throughout the next several months. Here are a few ways experts believe the real estate market could shift in 2022:

Home prices should dim

High inflation, recession fears, high mortgage rates, and more should press home prices lower in 2022. However, that doesn’t necessarily mean prices will drop significantly across the nation. Dr. Johnson expects housing prices to drop in low-demand areas, but he says that as people continue to flock to hot markets it should shield those regions from significant price declines.

“I think you’ll get a bifurcated outcome,” he says. “Some parts of the country are going to [see prices drop] rather noticeably. Those declines are going to correlate with areas that have decreasing populations. I think, within the increasing population areas, growth is going to help sustain current prices.”

At this point in 2022, prices already appear to be pulling back in some areas. According to HomeLight’s 2022 Fall Top Agents Insights survey, 90% of agents say price reductions are happening more frequently within their markets in Q3 – a 56% increase from Q2.

Mortgage rates will likely climb

Mortgage rates have shot higher thus far in 2022. According to Fortune, mortgage rates streaked to 6.3% in June, capping a more than 50% rise in just six months. During the summer, rates pulled back a bit, but they’ve clawed their way higher recently. According to Mortgage News Daily, their index saw the average mortgage rate for a 30-day fixed mortgage rise above 6% to open September.

As Dr. Johnson points out, the upswing in mortgage rates could dampen home prices in 2022.

“The mortgage market continues to surprise me,” says Dr. Johnson. “And depending on how the Fed fights inflation, we could see rates go even higher, which is going to put a little more downward pressure on the value of homes.”

Home values may dip

As high mortgage rates thin out buyers, it should depress home prices. That could reduce home values in most areas.

“I think we’re going to cycle into a neutral marketplace, and in some marketplaces, it’s going to be a buyer’s market,” Buehler says. “That affects values.”

However, Buehler notes that housing appreciation should fall back from recent sky-high levels. So lower home values doesn’t necessarily mean long-term losses for homeowners.

What will drive market trends in the coming months?

Wondering what will propel real estate market trends throughout the rest of 2022? Here are a few factors that may influence the housing market in the next few months:

Population growth: Dr. Johnson says he expects the housing market to fragment and shift based on local regions in 2022. He believes regional housing prices will bend with population.

“I think we’re going to see significant declines in certain parts of the country in terms of housing prices, but those places are almost certainly going to be areas where they’re having depopulation,” he says.

Inventory levels: In areas where prices tick lower, buyers and sellers will likely run into a second factor: inventory levels. Everything from construction costs and local demand to city or state bureaucracy and more can affect housing inventory. So, inventory levels will vary by zip code. However, in places where shortages pop up, prices should find a floor to rest on.

“In areas that have persistent inventory shortages, oddly enough, that will help support prices,” explains Dr. Johnson. “If you’re in an area that’s already supply restrained, and you can’t solve that problem, it’s going to be hard for your prices to fall that much.”

Mortgage rates: As mortgage rates climb, buying a home becomes more expensive. Stack high mortgage rates on top of historic inflation, and high costs may be causing home buyers to back away from the housing market in 2022.

How fast will homes sell during the rest of 2022?

In recent years, homes have flown off the market at historic rates. According to a National Association of Realtors (NAR) report, homes only sat on the market for a median of 14 days before selling earlier this year — an extremely short window for median days on market. However, those rates appear to be slowing.

A July NAR report saw home sales tumble 5.9% from the month prior. That marked six straight months where existing home sales fell. The same report showed June’s home sales dropped by more than 20% from the year prior.

It also appears that confidence in the housing market is nudging away from recent highs. Over the last two years, more than 90% of real estate agents consistently reported a seller’s market in their area. However, in HomeLight’s recent 2022 Fall Top Agent Insights survey of more than 1,000 agents, only 51% are describing their current local market as a seller’s market. Only three months earlier, that number stood at 95%. But even with this shift, the majority of agents surveyed are not yet convinced it’s a buyer’s market. Only 10% characterized their local market that way.

Before homeowners panic, it’s important to remember that home sales are falling off record highs. Still, high inflation, rising mortgage rates, and economic uncertainty could all keep houses sitting on the market longer in 2022.

How will housing trends impact homebuyers and sellers?

With so much happening within the housing market, you’re probably wondering, “Will there be another housing market crash?” Dr. Johnson says he doesn’t expect the market to nosedive the way it did in the last housing crash. However, he believes housing prices could inch lower in some areas.

“I’m not going to be shocked if I wake up a year from now and see 10% price declines,” explains Dr. Johnson. “I am going to be shocked if I wake up and see 30% price declines like last time.”

Here are a few ways shifts in the 2022 market could affect buyers, sellers, renters, and homeowners:

What home sellers can expect in 2022

If you’re planning on selling your home in 2022, you can expect a few outcomes that may impact your plans:

Prices should relax: The experts say they believe prices will cool down in the near future. That means you probably won’t have the booming profits and bidding wars that your neighbors may have experienced in recent years.

Hot markets may not fall much: Even if local housing prices dip, some markets may not be dented much in 2022. Dr. Johnson says that if your local population is booming, that demand could catch price declines before they fall too far.

“Some areas are expecting a huge population influx, and I just don’t think you’ll see the tremendous decline in price there,” explains Dr. Johnson. “You’ll maintain wealth, so you don’t have to worry about prices plummeting so much as a homeowner.”

Demand should slow: Higher mortgage rates weigh down buyers, and they’re likely to slow down demand within the real estate market. That all should cause sales and appreciation to calm down. As Dr. Johnson notes:

“You can’t go from 3%, 30-year financing to 5%, 30-year financing and not see it impact housing prices. As far as double-digit appreciation, which was very much influenced by low mortgage rates, those days are over.”

What homebuyers can expect in 2022

Homebuyers should plan for a few events within the real estate market throughout the rest of 2022:

Prepare for higher mortgage rates: Homebuyers can expect higher mortgage rates to add extra costs to their purchases. That means you’ll want to nail down how much home you can afford before you buy a house.

“As higher and higher mortgage rates come about, it becomes ever more difficult to make that monthly payment,” explains Dr. Johnson. “As interest rates go up, you can afford less.”

Expect new buying opportunities: As prices and competition fall, buyers can plan on seeing more opportunities in the market. Buehler says he’s seeing millennials who were once being outbid by corporations coming back to a friendlier market.

“Now, all of a sudden, the millennials that were almost shut out in the marketplace by all these hedge funds buying these homes are able to get back in the marketplace and buy,” he says. “And they should buy.”

Expect more affordable living in low-demand areas: In 2022, you may see houses in less popular areas lose value, but that doesn’t mean downturns are all bad. Dr. Johnson says housing markets that falter in the near future could also become less expensive to live in.

“I think you’re going to see potential significant declines in prices in many cities, but what they will get in return is affordability,” he says. “Things will become affordable. If prices crash, affordability is no longer an issue.”

First-time home buyers can expect more opportunities

With mortgage rates growing and appreciation wavering, the rest of 2022 may feel scary for first-time home buyers. However, Buehler says he’s seeing hedge funds and commercial investors back away from the market. That means there could be fewer bidding wars and more opportunities for new homeowners to pounce on houses they can afford throughout the rest of the year.

What homeowners can expect

Not everyone is ready to buy or sell. Even if you’re sitting on the sidelines, changes in the housing market may impact your home investment in 2022. Here’s what homeowners should expect through the rest of 2022:

Appreciation should settle down: Although experts don’t expect home values to crash like the last housing crisis, they do say the recent boom in appreciation should subside in 2022.

“Typically, before this crazy run up, we would have about a 3% annual increase in the appreciation of a home,” explains Buehler. “ We never had this kind of stuff, where we’ve had a 20%-25% increase in the value of a home, and that’s unsustainable.”

Plan on higher living costs in hot markets: As Dr. Johnson points out, population increases could keep prices from falling significantly within high-demand areas. However, if inflation calms across the country, don’t expect living costs in trendy housing markets to decrease at the same rates. At the same time, if your home loses value in 2022, it may not all be bad news. Housing price declines may come with lower everyday living costs that add up in the long run.

Don’t expect high prices to last forever: If you’ve watched neighbors land record profits on recent home sales, it’s important to remember that real estate is cyclical. Housing prices may peel back from their recent highs, but that doesn’t necessarily mean your home will lose its value in the long run.

What renters can expect in 2022

Rent has sizzled in the last few years. A study by the Center for Housing Studies of Harvard University found that rent prices in October of 2021 soared 16.8% higher than the year prior — rising at the fastest pace in decades. From there, according to the Bureau of Labor Statistics, rent inflation has continued to climb higher every month.

Although rent prices may cool down in 2022, experts don’t expect rents to drop significantly across the board this year. As with housing prices, Dr. Johnson says rent prices may soften in areas where demand falls, but inventory shortages should keep prices propped up in popular markets.

Navigate the changing real estate market with an expert

No matter where the market swerves, the experts forecast major changes in the 2022 real estate market. Although higher mortgage rates and strains on the economy should pull down home prices, experts don’t expect a large-scale crash to impact the entire market. Instead, housing experts say home value will shift depending on population growth, inventory, and other factors within micro-markets.

Whether you’re a buyer or seller, the best way to stay ahead of these trends is to lean on the help of a top-performing agent. If you’re ready to connect with a top agent who understands your local housing market, try out our Agent Match tool. By partnering with an experienced agent from your area, you’ll have the support you need to navigate the housing market no matter what your goals are for 2022 and beyond.

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