The housing market is ‘far from normal.’ Here’s what 5 economists and real estate think will happen next

                                            By Alisa Wolfson

From mortgage rates to home prices, here’s what might happen in 2022.

Aspiring buyers have plenty of questions right now: Will home prices fall? What about mortgage rates? (See the lowest mortgage rates you may get now here.) What else should I know? So we asked real estate pros to share their predictions for the housing market through the rest of 2022.

Prediction 1: Mortgage rates may continue to rise
Nadia Evangelou, director of real estate research for the National Association of Realtors, notes that mortgage rates have doubled since the beginning of the year, surpassing 6% in September. And pros say they may keep climbing.

“Mortgage rates are climbing with renewed urgency following the recent Fed meeting in which Chair Jerome Powell made it clear that fighting inflation is the first priority for the Fed,” says Realtor.com chief economist Danielle Hale. (See the lowest mortgage rates you may get now here.)

Prediction 2: There may be a continued deceleration of home prices
Evangelou says there’s been a gradual deceleration of home prices, and that will continue. “Home prices have increased year-over-year by less than a double-digit percentage for two straight months. With rising mortgage rates hurting affordability, price gains will continue to slow, likely 5% by year-end,” says Evangelou.

And looking into October, Greg McBride, chief financial analyst at Bankrate, says asking prices — and the eventual sales price of homes — will come down from the astronomical prices we’ve been seeing, as the housing market slows and mortgage rates continue to ratchet higher.

Meanwhile, Hale says housing prices continue to moderate and are declining on a month-to-month basis. “This is true for both the median list price and the median sales price. According to the most recent data, the median listing price continues to grow at a double-digit pace while the median sales price registered just 7.7% growth,” says Hale.

What’s more, Hale expects that housing prices will continue to moderate as rising mortgage rates curtail buyer purchasing power. “But a dwindling number of existing homeowner sellers and fewer new homes for sale will keep prices from adjusting too quickly,” says Hale.

All this might mean the housing market is actually rebalancing toward a healthier place. “Home values have fallen slightly the past two months from their record highs set in June, due to a pullback in demand. The typical US home is worth about 0.4% or $1,500 less than it was in June,” says Jeff Tucker, senior economist at Zillow.

Prediction 3: There’s a lot of variation between markets
While home prices continue to experience year-over-year increases, they’ve backed off from the high we saw in early summer. “Whether prices are truly dropping depends on the specific market,” says Kate Wood, home expert at NerdWallet. According to August 2022 data from Redfin, home prices were up 6.9% compared to last year, selling for a median price of $406,586. That said, the number of homes sold was down 18.4% year-over-year.

Some areas are indeed cooling off, but others are still hot enough that price decreases may simply herald a return to traditional seasonality. “In a normal market, we’d expect to see home prices begin to back off as fall turns into winter, but the real estate market in most parts of the country remains far from normal,” says Wood.

Prediction 4: Buyers will have a less stressful shopping experience
The affordability challenges confronting buyers have only worsened with rising mortgage rates and therefore, Tucker expects further small price declines through October. “Inventory is sitting just below its August peak, and listings are taking longer to go pending. Taken together, that all means it’s a better time to buy for those still in the market. Buyers will have a less stressful experience that they’ve had over the last couple years,” says Tucker.