Home prices rose by nearly 20% over the last year, an astonishing rate of growth that was faster and more intense than even the run-up to the housing crash of 2008, according to Fortune — and that one sunk the entire global economy.
Volumes have been written about the lumber shortage, the remote-work office exodus, and the record-low mortgage rates that turned the 2021 housing market into one giant bidding war, but will it finally all come crashing down next year?
If the pessimist inside you wants to believe that 2022 will bring an implosion to rival anything the Great Recession doled out, you won’t have to look far to find a doom-and-gloom housing market analysis that confirms your worst suspicions.
The reality, however, will probably be much less dramatic.
Check Out: Surprising Data Reveals The Top 25 Tax-Friendly States To Retire
See: 26 Home Makeover Ideas That Each Cost Less Than $500
Current Growth is Not Sustainable, But a Crash Is Unlikely
Moving into the homestretch of 2021, Fannie Mae predicts that home prices will rise by just 7.9% between the fourth quarter of this year and the same time next year at the end of 2022 — “just” being a subjective term.
Although annual growth of nearly 8% might seem trivial in light of 2021’s historic gains, 7.9% is nearly double the average historical growth rate. Since 1987, according to the Federal Reserve Bank of St. Louis, home prices have grown by an average of 4.1% per year.
In short, the many buyers who were priced out of the market in 2021 should temper their expectations if they were hoping that the bubble would pop and turn the tables in favor of buyers next year.
Advertisement: High Yield Savings Offers
The more likely scenario is that the market will cool, but only to a point that’s less scorching hot but still historically impressive in terms of price appreciation. Although prices won’t fall, they will almost certainly increase by less — much less — than they did during the market’s historic 2021 run.
Avoid These: Craziest Things That Kill Your Home’s Value
Forces Are in Play to Ease Prices Down Gently
Two conflicting storylines are teaming up to make a sudden crash unlikely in 2022.
The first is rising mortgage rates. COVID-19 brought historically low interest rates that made it cheaper to borrow money than it had ever been before. Buyers across the country knew that such a chance would likely never come again and raced to lock in loans. Those record-low rates, however, have already started inching up and continue to climb. Fannie Mae predicts the average 30-year fixed mortgage rate will jump next year to 3.3%.