After a record year for home price growth, everyone is wondering if real estate prices will continue to increase in 2022. Some experts believe the market will continue to heat up, albeit at a slower pace, while others say the market could take a turn for the worse. Since no one has a crystal ball, we'll let the data do the talking. Here's a closer look at where real estate prices could be headed next year.

Housing shortage fueling record price growth

Supply and demand are the driving forces of price growth. When a product (in this case, real estate) is in high demand and short supply, its value increases. Over the past year, home values have increased over 21% year over year, according to the S&P/Case-Shiller U.S. National Home Price Index. Low interest rates, as well as record-high inflation, have been contributing factors to this rapid home appreciation, but the core of the issue is the national housing shortage.

An estimate by Freddie Mac states that the United States was short as much as 3.8 million housing units in 2020. This is a serious shortage, which undoubtedly creates higher prices for homes. But not all housing is in short supply, meaning not all real estate prices will be impacted in the same way.

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Real estate is highly localized. As result, prices will rise at different rates between neighborhoods and markets, driven mainly by supply and demand. The National Association of Realtors (NAR) tracks the housing shortage as it relates to the homes available, including housing permits, as it relates to the number of residents and jobs in the market. It seems only a few select markets have a medium-to-high housing shortage, that include major metro areas like New York City; southern California; Seattle; Portland, Oregon; Detroit; and Chicago.

According to NAR's tracker, many markets, including those across the Southeast and Sun Belt, experiencing high inward migration, are actually in sufficient supply. That means certain areas and types of housing will likely rise at a faster rate than others may in 2022, but there's more to prices than supply and demand alone.

Why home prices may not rise as much in 2022

The Federal Reserve has indicated its intent to raise interest rates and pull back on its financial support of the bond and financial markets. Initial predictions were to start tapering support and incrementally increase rates to combat inflation in 2022, but now experts are predicting rates won't rise until 2023, or at the soonest, the end of 2022.

Rate increases matter because they mean borrowing money to purchase things like homes will be more expensive, and that could mean fewer homeowners and prospective buyers will move into the marketplace. The longer the Fed waits to do this, the more likely it is to see home prices increase at comparable rates to 2021.

Supply chain issues will also directly affect home prices because they impact housing deliveries by slowing the number of homes being built and delivered to the market. The longer it takes to rectify the current product and labor shortages because of supply chain issues, the more likely home prices will remain elevated.

There are also still 1.2 million loans in forbearance as of September 2021, according to Black Knight, which are expected to expire by year's end. The exit outcome, or how the borrowers choose to address the accrued amount due, can also impact home prices. If borrowers choose to sell their homes or the home ends up in foreclosure, it could increase supply, slowing the rate at which prices increase in those markets.

What experts are saying about real estate prices in 2022

Expert opinions seem to be all over the board for where real estate prices will go in 2022. Zillow, the largest online residential real estate listing platform in the world, shared its predictions for home values in 2022, indicating there will be continued growth but at a much slower pace, of around 11.7% from August 2021 to August 2022. The company doubled down on its theory for a slowing housing market by pulling out of its iBuying business after reporting an expected $500 million loss from the inability to sell its current inventory at higher prices in 2022.

Fannie Mae recently predicted a housing price increase of 7.4% for the coming year, while Goldman Sachs predicts over double that, estimating a 16% home price increase in 2022. CoreLogic, on the other hand, is estimating a sluggish 1.9% year-over-year increase from September 2021 to September 2022.  There are even contrarians out there who believe the market isn't in a shortage, but is, in fact, oversupplied, putting real estate values at risk for a correction in 2022.

Many of the cities NAR mentions are undersupplied and still recovering from an exodus after the pandemic. New York, for example, saw its residents flee in droves in search of more affordable housing and space. While demand is slowly returning to NYC, occupancy levels for the five boroughs still haven't returned to stabilized levels, indicating there is sufficient supply based on current demand.

Where will prices go in 2022?

The challenge with predicting real estate prices is that data frequently contradicts itself. And predictions are just that -- predictions. No one truly knows what will happen in the future, and each analyst can use different data to interpret their own outcomes. No one indicator drives value movement but rather, a number of different facets within the global and local economy that determine where real estate prices will go. Based on the data above, it's likely that real estate prices will increase for markets in low supply, particularly among the type of real estate in high demand, although likely at a slower rate.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.