As last year wound down, the conventional wisdom was that home-price acceleration would cool considerably this year. About six weeks into the new year, there's a new conventional wisdom.

The same factors that have driven home prices to record highs through the pandemic are persisting, and some of those forecasters are now revising their forecasts.

For instance, the economists at Zillow (Z 1.13%): On Dec. 8, they predicted an 11% jump in home values for 2022. On Jan. 19, they changed that to 16.4%. Why? "The robust long-term outlook is driven by our expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes," the latter report said.

Short-term, the Zillow prognosticators said, they expect the annual pace of home-value growth to exceed 20% year over year in February and then gradually slow for the rest of the year. That's while existing home sales grow by 7% in 2022, from 6.14 million in 2021 to 6.57 million this year.

Three people on floor in front of a couch holding a cardboard roof over their head.

Image source: Getty Images.

NAR has a more moderate outlook

The National Association of Realtors (NAR) said that the national median home-sales price in 2021 was a record $346,900 and that 6.12 million homes were sold, an 8.5% gain from 2020 and the most since 2006.


Going forward, the giant trade group's chief economist, Lawrence Yun, forecasts much more moderate home price gains as 2022 rolls on. "I expect home prices to grow more moderately by 3% to 5% in 2022, and then similarly in 2023 as more supply reaches the market," he said in the NAR's existing-home-sales monthly report on Jan. 20.

Zillow, however, added this caveat: "Downside risks to our forecast remain. Elevated inflation heightens the risk of near-term monetary policy tightening, which would result in higher mortgage rates and weigh on housing demand," its report stated.

The key 30-year fixed rate has risen to an average of 3.962% after bottoming out at 2.93% in January 2021. Continued growth in rates and prices will continue to put pressure on affordability, a factor real estate investors should keep in mind as they consider when and where to buy in this market.

Lurching toward a new normal?

It doesn't take much to make a big difference. The National Association of Home Builders (NAHB) published a study in 2020 that said every $1,000 increase in median home price forces 158,857 Americans out of the market for homes at that price. The same study found that every quarter-point rise in mortgage rates prices 1.3 million households out of the median price range.

Given those metrics, a 10% rise in the median home price would be about $34,000 and price out about 5.7 million potential buyers. Same thing with interest rates now on the rise. A full percentage point would price about 5.2 million households out of the median price home, rate increase that's already happened.

"The good news is that home prices should begin to normalize later in 2022 as more homes come on the market," Yun said.

With home prices and interest rates on the rise, compounded by inflation for everyday essentials, one does have to wonder what that new normal will look like.