Falling home prices will depend on several factors. Here’s what you need to know.
the main points
- We started 2022 with inflated home prices nationwide.
- Whether prices will fall during the year depends on mortgage rates, inventory, and the general state of the economy.
There is a reason 2021 has been a challenging year for home buyers. Property values have stabilized at inflated levels throughout the year, making it difficult for buyers on a budget to enter the market.
Unfortunately, we start 2022 in a similar boat. Home values are rising nationally, and if they are outside your price range, they may fall throughout the year. But is this something you should expect?
In the absence of a crystal ball, we can’t definitively predict whether home prices will fall this year. But here are the factors that are likely to dictate how home prices move.
1. Mortgage rates
Although mortgage rates were higher in early 2022 than they were in 2021, on a historical basis, they are still quite competitive. While this bodes well for buyers in one aspect, it can also be problematic from a home price perspective.
If mortgage rates remain low, the demand for homes may remain intense. Higher demand often goes hand in hand with higher prices.
However, many experts expect mortgage rates to rise in 2022. If they rise modestly, it may not affect buyer demand – and thus home prices. But if prices see higher-than-expected rises, buyers may back off, slashing demand and lowering home prices.
2. Housing inventory
Anytime there is not enough of a particular good to meet the demand, prices tend to rise. This has been the case in the US housing market over the past year and change.
We start 2022 with a low housing stock, which is unlikely to change in the near term. Historically, winter is not a common or easy time to include a home on a listing.
However, if the housing stock rises during the year, this could dampen buyer demand. This, in turn, can lead to lower housing prices.
One of the main reasons prices remain at such high levels is that buyers are engaging in bidding wars to disrupt the limited inventory available. In a bidding war, two or more buyers bid on the same property, increasing their bids in the process. Since bidding wars were common in 2021, home prices have skyrocketed. If the housing stock rebounds in 2022, bidding wars could become less frequent, driving down home prices.
3. General Economy
At the moment, the economy is in pretty good shape compared to how things were a year ago. In fact, the national unemployment rate recently fell to its lowest level since the beginning of the pandemic.
If the economy remains strong, it may push more people to sell their homes. This, in turn, may lead to a noticeable increase in inventory which leads to lower prices. But if things go wrong in terms of the economy, sellers may continue to refrain from listing their homes, thus perpetuating the inventory shortage that buyers have been wrestling with for months and keeping prices in place.
Should you plan to buy a home in 2022?
If home prices today are too high for your budget, 2022 might not be the ideal year to buy. This is because we cannot say with certainty that prices will fall in a meaningful way.
On the other hand, if you spend the greater part of 2022 making money for a down payment on a home and take steps to make yourself a great candidate for a mortgage, you may find that you are able to buy a home later in the year, whether prices drop or not. Therefore, your best bet is to keep an eye on the real estate market, while doing everything in your power to improve your personal financial picture.
Historic opportunity to save thousands from your mortgage
Chances are that interest rates will not remain at multi-decade lows for much longer. That’s why taking action today is so important, whether you want to refinance and lower your mortgage payments or you’re ready to start the process of buying a new home.
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