How much will home prices slow down in 2022?

Paul Centopani
The Mortgage Reports editor

Will housing values come back to earth in 2022? 

Home prices skyrocketed at unprecedented levels in 2021.

Property values rose annually by double digits with almost every passing month, creating “one of the most robust seller’s markets in a generation,” according to Frank Martell, president and CEO of CoreLogic.

However, this year should offer a bit of a breather for those looking to buy their first home. 

The rate of price growth is projected to dissipate through 2022 and even revert to pre-pandemic normalcy by late summer. 

Home prices will still appreciate, but by the fall, the pace could drop to a fraction of what it was in late 2021. 

Verify your home buying eligibility. Start here (Jan 20th, 2022)

A sunnier forecast for first-time homebuyers

Intense demand and bidding wars led to the astronomic home price growth that defined 2021. 

The real estate market is still supercharged, but consumers should find a little more footing in 2022 behind a settling pace of appreciation.

The latest Home Price Index (HPI) report from CoreLogic showed an annual jump of 18.1% in November 2021 — the highest ever dating back to when the company started tracking in 1976 — and projects an average of 14.9% growth for the year (December data isn’t in yet). 

For comparison, the preceding five years never broke a 6% average:

  • 2016: 5.4%
  • 2017: 5.8%
  • 2018: 5.7%
  • 2019: 3.9%
  • 2020: 5.9%

The forecast for 2022 gets much closer to pre-Covid times and cuts 2021 nearly in half, dropping to a 7.9% average. 

Price appreciation could drop to the 2% range

The HPI projection decreases gradually throughout the year and gets all the way down to 2.8% in November.

CoreLogic points to two main factors that will bring down the pace of home prices: affordability issues and supply gains. 

“The slowing represents a moderation in buyer demand reflecting the erosion of affordability due to high prices and our forecast of rising mortgage rates,” said Frank Nothaft, chief economist at CoreLogic.

“And more for-sale inventory from single-family construction and more existing owners relocating,” he adds. 

Looking to buy a home? Check your eligibility here (Jan 20th, 2022)

Buyer demand is already slowing 

Recent buyer demand has already started to show moderation. 

With rising interest rates and seasonal slowdown, December purchase mortgage rate locks fell 25.2% from September and 22.5% from November, according to Black Knight’s Originations Market Monitor. 

Moreover, the Fannie Mae Home Purchase Sentiment Index decreased in December as more consumers felt constrained by the lack of affordability as homes were bid up to record highs. 

While “affordability is likely to be a growing challenge,” Fannie Mae SVP and chief economist Doug Duncan expects “an increase in new homes to come to market later in 2022.”

Home price growth example

Home buying is set to have another strong year in 2022 so it’s important not to confuse a slowing appreciation rate with a flatout reversal. 

Prices won’t decline this year, but the amount they grow should. 

If we follow CoreLogic’s numbers, it paints a clearer picture of how the price of a $300,000 house changes and what it’s estimated to grow to by November:

  • Home price in Nov. 2020: $300,000
  • Home price in Nov. 2021 with an 18.1% annual HPI: $354,258
  • Home price in Nov. 2022 with a 2.8% annual HPI: $364,317
  • Price change from 2020 to 2021: $54,258
  • Price change from 2021 to 2022: $10,059

As you see, that example house still rises in value in 2022, just at a much more palatable amount for buyers. 

What are today’s mortgage rates?

Of course, there’s “never a bad time to buy” as long as you can afford it, according to The Mortgage Reports loan expert and licensed MLO Jon Meyer

While the pace of home price growth should slow throughout 2022, interest rates are expected to do the opposite

Checking your mortgage eligibility and reaching out to a lender could help you figure out when buying a home could be right for you and what you can afford. 

Verify your new rate (Jan 20th, 2022)