Housing Market Predictions For 2022

Published date: Dec 15, 2021

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We are almost done with 2021 and the incredibly chaotic housing market that came with it. It’s natural that we look forward and try to understand what next year will look like. Many home shoppers experienced the double-edge sword of 2021’s housing market. Witnessing how the housing market appreciated over the last twelve months fueled fears of another recession, understandably so. 

The average Joe doesn’t spend days, weeks, or months on end to analyze the influencing factors. Even the best real estate market analysts can be wrong when the market is so unpredictable, and some even consider that forecasts aren’t as trustworthy now as they were a couple of years ago. By checking median home values for a city on Zillow, they no longer show the predictions or forecasts they would have two years ago. The information is more focused on what’s happening now and less on what should be expected. 

We are currently dealing with a low inventory of homes, coupled with low-interest rates that have to satisfy a large number of home shoppers. That is one of the factors that influenced the record-breaking appreciation of home prices over the last year. Understanding all this information guides experts towards housing market predictions for 2022. The growth will not stop, but it will normalize. Simply put, home purchasing will be more approachable in 2022 for many home shoppers.

Housing Market Overview for 2022

Access to information comes with a certain level of responsibility. Not to quote the Spider-man movies but, seeing as information is power, “with great power comes great responsibility”. Based on information and facts from the depths of the industry, we can make some predictions. Real estate and mortgage experts are signaling the shape of 2022’s housing market, and we’re here to pass the information along.

Demand and Generational Shift

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Throughout 2022 we can expect the housing market to continue its growth. Since working from home and health concerns are likely to continue, city dwellers will still consider relocating. Either because they want to get out of the big cities or want a more affordable cost of living. Areas of the country that are oversaturated by a demand that leads to incredibly high housing prices might experience a decline in demand. If people no longer need to live in New York City for their Manhattan office but can work remotely, they can move to the more affordable surrounding areas or states. Home size also plays its part as many homeowners need extra space for their home office. However, the most significant impact of high housing demand is the millennials. They are reaching prime first-time ownership age, and interests are low, making the market relatively affordable.

Space for Growth

Signs are showcasing a continued strength in the housing market. Still, given the already available signs of moderation in the market, with home purchases slowly decreasing and a decrease in market competitiveness, 2022 seems to head towards a market normalization. Looking at what Zillow did, we must understand that stopping their home purchases does not mean they see something in the market that others don’t. They are just focusing on their available inventory as house flipping isn’t as easy now as before the pandemic.

A cooling off for both demand and prices seems to be the trend that we’re already seeing. This will allow the inventory to catch up, which in turn will calm down price appreciation. The housing market predictions for 2022 are of a more normalized and balanced market that will make it easier for buyers to purchase homes.

Keep an Eye on Interest Rates

Currently, interests are historically low. While experts say that housing prices and gains should level out in the coming year, they suggest caution when it comes to interest rates. For now, the Federal Reserve is keeping interest rates at a low level, but this is expected to change. When they change, we will see a decrease in purchasing power. However, it all depends on how fast the Fed will increase interest rates. 

If your purchasing plans depend on the affordable interest rates we are currently experiencing, you should go forth with your search and not wait till 2022. Things will change, and while the logical trend would be a steady increase in interest rates so that the market doesn’t destabilize again, anything can happen until next year to throw us all a curveball. Unpredictability is a reality of today’s day and age. The last thing we want is to postpone home purchasing and be unable to afford one next year.

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Will Home Prices Drop in 2022?

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The year 2021 electrified the housing market prices. Month after month, the year-to-year appreciation rates were breaking record after record. From August 2020 to August 2021, real estate prices grew by over 16%, the most considerable annual growth in the last 45 years. July had over 14% in July, and now, in October, we’re dealing with a year-to-year increase of around15.5%. 

This light calming down of the market is more likely to continue, but prices won’t go down anytime soon. They will continue to grow at a steadier pace as the market normalizes. The slowing down of home price gains will take off some pressure from interested buyers, making it easier to purchase homes. However, don’t forget about the interest rates.

Normalizing Growth Rate

What’s happening in 2021 will continue in 2022. But we’re not referring to prices skyrocketing but slowing down their growth. Due to an inventory shortage and existing demand, they will continue to climb, but affordability is likely to moderate this growth. I think we can all agree that the appreciation rates of 2021 weren’t those of a normal market. That is a given. If we look back to pre-pandemic growth rates, from October 2017 to October 2018, there was a 5.4% growth rate. That was the average over the last decade, and that is what we can expect once the housing market normalizes. After that, the real estate market got hit by the effects of the pandemic.

Still, let’s look back to 2008, the worst year for the housing market in recent history. If we calculate an annual 4.5% growth rate since then over the 20-year arc that followed, we will reach the current market prices. If we were to take out the Great Recession from the real estate history books, we would end up more or less where we are now regarding prices. The bubble burst that shook the global economy in 2008 had a long-lasting impact on prices, holding them down for around a decade. Taking the values of 2006 and the values we are seeing now, we reach a 4.5% annual growth rate. This period is just leading to normalization in the housing market.

Demand will Keep Prices High

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Yes. Prices started cooling off, and the same will happen in 2022 if nothing else rocks the market. Still, a cooling-off period does not mean a drop. The constant demand for housing won’t allow a drop to occur. Millennial demand, interest rates that won’t skyrocket, and an inventory shortage will maintain appreciation rates while normalizing them. 

Those who continue to work remotely will still look at homes if they haven’t made the transition yet. This could lead to housing appreciations in smaller markets as people seek to move out of expensive cities. Bigger demand affects prices. Similarly, for some California housing market predictions for 2022, the insane appreciation rates will calm down, making it a more approachable destination in the future. However, do not start comparing California prices with Maine. Demand will remain big in highly sought-after destinations.

Building Sector Predictions for 2022

We already mentioned what Zillow is dealing with. To give more information, the company halted their home purchases through their “iBuyer” division. This scared many investors and analysts worried about trends that might come next. However, Zillow has a logical explanation for it. They buy, renovate, and sell properties directly to buyers through their program—basically, flipping houses. The constraints on supply chains affect this process as renovations are more difficult due to a lack of supplies. This is experienced throughout the market. 

This tells us that the housing demand will still suffer from the short supply. On the other side of the coin, demand is starting to decline, giving inventory a breath of fresh air. This will provide the housing supply a chance to catch up. At the same time, experts predict that some investors might move away from 2021 rental market trends and sell their rental properties to gain profits from today’s resale market. Next year’s growing housing inventory will take off the pressure for buyers from the accelerated housing prices we’ve seen this year.

Still, do not expect housing inventory to overcome demand. There is a long way to go for the housing inventory to saturate the market. The housing shortage will reach a 50% shortage, but it may take as much as three years to get to normal levels again. Supply chains are still affected by COVID, the construction workforce is yet to reach pre-pandemic levels, and boomers won’t be selling yet as they have nothing to buy.

Mortgage Essentials

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Buyers are wondering what they can expect from next year’s interest rates. Currently, at approximately 3%, rates are expected to climb. They have been at historically low levels for a good portion of 2021, but rates are likely to grow as the market continues to stabilize. Experts have different opinions, but they all agree that they won’t exceed 4.25% by late 2022. The average predicted growth for interest rates on 30-year fixed-rate loans is 3.6%. A drastic increase is unlikely to happen in today’s fiscal environment. But even if interest rates reach 4.25%, those are still at historically favorable levels for buyers.

Will the Housing Market Crash in 2022?

Note that we specify a boom that can be seen through the market, not a bubble because all the economic signs prove that it’s not a bubble. And only bubbles burst. Home shoppers should not expect prices to drop as they did in 2008 or at all. The trends are still towards appreciation, and chances for a real estate market crash are faint. Despite the heavy blow taken by the economy in the heat of the COVID pandemic, the recovery has been great. By the end of 2022, the job market is expected to recover 100% of the jobs lost due to the pandemic.

Now, for those fearing the 2008 scenario happening again, the factors that led to it back then don’t exist now. The only common element is skyrocketing prices. Back then, housing inventory was high, demand was low, high-interest rates, and bad lending practices based on bad credit. Now, we have a low inventory, high demand, low-interest rates, and strict lending practices based on high creditworthiness. To top that, the following years will have to deal with more Millennials, Gen Y, and Gen Z, so housing inventory will have to satisfy growing demand. As long as demand is high and housing inventory is struggling to keep up, a crash is unlikely.

To Buy or Not to Buy?

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That is the question indeed. For all those wondering whether the current real estate market is safe for investments … a certain level of risk will always exist. That’s a given with any type of investment. However, personal circumstances are the only ones that matter in the end. Just take a look at your financial situation and make the best decision based on the 30/30/3 rule. 

  • Monthly mortgage payments should not exceed 30% of the household income;
  • Choose a 30-year mortgage;
  • Target a 3% fixed interest rate.

The most important factor that guides residential home buyers is life. Regardless of their age, social status, generation, or financial situation, those that need to buy a home will look into it while those that don’t need to relocate won’t. For the average real estate buyer, it doesn’t matter if the housing market is good or bad. 


Buying a property isn’t an investment for them but a practical decision. Interest rates are on buyers’ side right now, but prices are high. Still, should a newlywed couple continue to rent or move in with their parents and halt their life plans? If they have the financial stability, need, and desire to buy their first home, they shouldn’t try to time the purchase perfectly based on what’s happening in the market. Anything can happen, and nothing is certain. Even if the factors we mentioned above sway the market towards buyers for 2022, that does not mean something unpredictable can’t occur and send the market in complete disarray. 

We should have learned something from 2008, and we did? Today’s market is ordained in such a way that it has an added level of security. But is it 100% safe? No, just like nothing else is. Let us know in the comments below what you think we can expect from the 2022 housing market. Like & Share this article with anyone who might be interested in next year’s real estate market.


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