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Will Home Prices Drop in 2022? Forecasts from 7 Housing Authorities

Lots of homebuyers are wondering whether home prices will drop in 2022. Eight major housing authorities have made predictions. See where home prices might be headed.

May 4, 2022
May 4, 2022
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What goes up must come down, right? Well, home prices may come down at some point, but it’s not likely to happen in 2022. (Spoiler alert: 2023 isn’t looking good either.)

In fact, home price forecasts from seven leading housing authorities have flat-lined. When we last took the temperature in December, forecasts ranged from -2.8% to 16% annual price growth, with an average of 6.1% annual price growth by the end of 2022.

The latest round of predictions features new numbers with the same result: 6.1% price growth from Q1 2022 to Q1 2023. Goldman Sachs came in with the lowest forecast (2.7%) while Zillow is an outlier on the high side at 14.9%.

For homebuyers, this presents a double-edged sword. Those that wait until next year could end up paying an additional $26,000 on a home at the Q1 2022 median sales price of $428,700. And that’s not including rising mortgage rates.

But homebuyers that purchase sooner rather than later will likely benefit from rapid home equity. In a matter of months, their $428,700 home may be worth upwards of $454,000 with no increase to their monthly mortgage payment.

Q1 2023 home price growth forecasts

Forecasting home prices – especially during a global pandemic – can be tricky, which is apparent by the wide range of forecasts available.

Goldman Sachs sees home prices appreciation averaging 2.7% in 2023 while Zillow is calling for 14.9% growth from March 2022 to 2023. Using the Q1 2021 median home sales price of $428,700 that’s a difference of more than $52,000.

Forecaster  Annual growth forecast  Markup to Q4 2021 median home price  Forecasted Q4 2022 median home price Goldman Sachs2.7%$11,574$440,274Average6.1%$26,150$454,850Zillow14.9%$63,876$492,576

While homebuyers would prefer the Goldman Sachs timeline, another year of above average price growth is likely. The average of forecasts of seven major housing authorities calls for 6.13% price growth next year.

Due to rising mortgage rates cooling demand, most industry forecasters -- with the notable exception of Zillow -- are calling for price growth to fall throughout the second half of 2022 before levelling off around 3-7% sometime in 2023. According to CoreLogic, annual appreciation hit 20.9% in March 2022, so there's a ways to go in the next year.

There are a few ways to look at the 6.13% annual price growth forecasted for early 2023:

  1. It’s much slower than the record 20.9% price growth from March 2021 to March 2022
  2. It’s substantially faster than average 4-5% annual appreciation
  3. It’ll hopefully be faster than the rate of inflation, if the Federal Reserve is successful in combatting it

Why are home prices expected to keep rising?

While it’s tempting to wait for the “housing bubble” to pop (even though it won’t because it’s not a bubble), recent home price increases are a result of an imbalance in supply and demand that’s been decades in the making.

In the demand corner, a wave of millennials – the largest age cohort in the country – are nearing peak homebuying age. They’re establishing careers, having children, and eager to buy their first homes.

In the supply corner, housing inventory was already suffering from a decade-plus of underbuilding following the mid-2000’s housing market crash. As home values plummeted, builders slowed the rate of single-family home construction to a near-crawl and have been slowly ramping it up since. Then, the pandemic bogged down home construction and made newly built homes more expensive.

The bones have been in place for steady home price growth in the early 2020’s for more than a decade. The pandemic just exacerbated the supply and demand imbalance even further, leading to historic price growth in 2021.

Some pandemic affects are expected to fade in 2022 resulting in slower price growth. CoreLogic chief economist Frank Nothaft – who has the most bearish forecast of our 7 housing authorities – pointed particularly to faster home building and rising mortgage rates:

“Much of what we’ve seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures. As we move further into 2022, economic factors – such as new home building and a rise in mortgage rates – are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021.”

There’s also hope that a year of vaccinations and the declining omicron wave will make more homeowners feel safe enough to sell, as many have been avoiding during the pandemic.

But will this be enough to cause home prices to drop in 2022?

Unfortunately not. There are no quick fixes for the underlying economic forces driving up home prices in 2022. While that may make homebuying more difficult, it also provides an all-but-guaranteed opportunity for several years of home appreciation for homebuyers that break through.

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