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6 Housing Market Predictions for 2022

Author: Aly J. Yale | December 05, 2021

Magnifying glass over paper cutouts of different types of housing.

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What's in store for the 2022 housing market?

It was a record-breaking year for the housing market. Mortgage rates hit new lows, buyer demand soared, and the pandemic turned traditional buying and selling tactics on their heads. Will it be more of the same in 2022, or can consumers expect slightly more manageable conditions? Here's what you need to know.

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Interest rates on pieces of paper.

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1. Mortgage rates will rise

Experts largely expect mortgage rates to rise over the next year -- especially with the Federal Reserve's recent move to start tapering off its mortgage-backed security purchases. The Mortgage Bankers Association predicts rates on 30-year mortgages will hit 3.3% in the first quarter of 2022, ending the year at 4%. Mortgage purchaser Freddie Mac has a more optimistic view of the market, projecting a 3.7% by year's end. Either way, it's up significantly from the lows seen this year. Rates bottomed out at 2.65% in February.

ALSO READ: Fannie Mae Says Mortgages Rates and Home Prices Will Rise Next Year

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A small model house sits atop cash next to house keys and a calculator.

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2. Home price growth will slow down

Prices rose at breakneck speeds this year and, according to the Federal Housing Finance Agency, were up 19% compared to 2020 at one point. Thankfully, it seems those days are numbered. While we likely won’t see home prices decline anytime soon, the speed at which they rise should slow considerably in the coming year. Freddie Mac expects price growth to average 7% next year, while property data firm CoreLogic projects a mere 2% growth rate.

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An approved mortgage application next to a small model home and line graph.

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3. Homebuying demand will stay strong

Mortgage rates are going to rise, but it shouldn't send homebuyers running for the hills. After all, millennials are in their prime homebuying years, and baby boomers? They're set on downsizing. Throw in a severe housing deficit (we're about 4 million homes short, according to some accounts), and you have the recipe for continued high demand for some time.

ALSO READ: Millennials Account for 37% of Homebuyers, Over 50% of New Mortgages

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Two people shaking hands over a document, a model home, and house keys.

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4. Refinances will fall off

Refinances are highly rate-sensitive, and as rates rise, more homeowners start to back off. We've already seen it this fall as rates have inched above 3%, but with rates projected to increase even more in 2022, we can expect an even bigger dropoff as we get into the new year. (Also, considering millions of homeowners refinanced in 2021, the number of borrowers who stand to gain from a refinance is dwindling too).

ALSO READ: The Truth About Refinancing Your Mortgage

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Two people stand in front of a house with a foreclosure sign.

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5. Foreclosures will increase

Now that the nationwide foreclosure moratorium has expired, foreclosures have started to tick back up. According to property analytics firm ATTOM Data Solutions, foreclosures are now up 76% compared to last year, and as mortgage forbearance options expire (homeowners can have up to 18 months in some cases), those numbers will likely climb even more.

As Rick Sharga, executive vice president of foreclosure platform RealtyTrac, recently put it, “So far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program. But there are hundreds of thousands of borrowers scheduled to exit forbearance in the next two months, and it's possible that we might see a higher percentage of those borrowers default on their loans."

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New homes being built.

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6. Inventory will rise slightly

The U.S. is incredibly short on housing, and it will take a long time and a lot of construction to close that four-million-unit gap. Fortunately, most experts project at least a slight improvement over the next year, both due to increased construction and more sellers hitting the market post-pandemic.

According to a Realtor.com survey, over a quarter of homeowners plan to sell their homes in the next 12 months. The crucial question here: Will they turn around and buy a new property (essentially leaving the same amount of inventory behind), or will they move on to a rental home, a care facility, or some other living scenario?

READ MORE: Housing Inventory Rose This Summer, but Don't Get Too Excited

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Blackboard with the word mortgage and smaller, related words surrounding it.

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Be prepared

While it seems next year's housing market will be slightly less high-stakes than 2021's, that doesn't mean it will be easy. If you're eyeing a real estate purchase, make sure to have your ducks in a row. Get preapproved for your mortgage loan, know your must-haves from your nice-to-haves, and work with an expert agent in your area. The more prepared you are, the better.

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