Will the Housing Market Cool Off in 2022?

Firefighter putting out a home fire

The housing market is expected to cool off slightly in 2022. Real estate firm Redfin estimates prices to rise only 3% in 2022 instead of the 16.1% year-over-year change reported by the FHFA. The Mortgage Bankers Association December 2021 forecast shows only a 5.1% expected price increase for home purchases in 2022.

Why will home prices slow their rapid growth in 2022?

An economist at the Mortgage Bankers Association revealed that builders have more homes under construction and there is a growing inventory of homes for sale (Housing Wire). This should lead to more available inventory which will help those waiting to purchase.

Another factor is the Federal Reserve’s raising of interest rates this year (The Wall Street Journal). There could be four rate rises in 2022, which means higher mortgage rates. The higher mortgage rates are, the more expensive it becomes to own a home. This slows price increases for home purchases because borrowing money to buy a home is more expensive than in the past two years. Higher mortgage rates lead to higher monthly payments, which are used to qualify buyers.

A third factor is inflation is slowing due to a healthier, less congested supply chain. Mortgage giant Fannie Mae expects inflation to slow to 3.8% before the end of 2022 as prices begin to stabilize.

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