Home Prices Will Rise More

Analysts of all types have made predictions about the 2022 housing market. These predictions include mortgage rates, supply, demand, and price. Most of these predictions actually concluded that price appreciation would slow throughout 2022. However, these experts have proven to be wrong so far to start the new year. Major price indices are all pointing towards a double-digit price appreciation so far. With just 2 months of data, the indices may not be fully accurate for the 12 month picture, but they are a telling sign. Will home prices rise more in 2022, or finally slow?

Home Prices Over The Year

Over the past 12 months, we have seen home prices skyrocket. Here is a look at the reports on year-over-year price appreciation:

These numbers show that there is no clear signs of price deceleration. In fact, home prices have only ticked up to start the year due to low supply and a rush of buyers to beat mortgage rates. Throughout 2021, we saw home price acceleration level out, but we have not seen home prices fall. In fact, it looked like prices have reached that equilibrium prices for now.

Home Prices Will Rise More

Home Price Acceleration Graph For Home Prices In 2021

With the graph used above, we see this phenomenon in home prices. Home price appreciation accelerated dramatically in the first half of 2021. They looked to level out towards the end of the year and that is the trend many experts predicted for 2022. However, in the beginning of 2022, home prices began to increase again based on the influx of buyers trying to beat mortgage rates. Home prices still look to increase, but at less percent by month than before. While prices did not fall, the increase of prices slowed down.

Home Prices Will Rise More Based On Data

According to the data and predictions, the home price deceleration has taken longer to come true than expected. The data shows that the level of home price appreciation slowed, right before ticking up into the new year. In fact, in the new year, the trend has resumed of prices appreciating quickly. This is largely due to the economic backdrop from the Federal Reserve signaling several rate hikes in the new year.

For those who do not know, price deceleration and depreciation are not the same. Deceleration describes the decrease in how fast home prices are rising, while they are still rising. Depreciation is the actual decrease in prices of the asset. Home values have done far from the opposite of depreciation. In fact, in 2021, real estate was the best performing asset behind energy. As we have all heard, inflation is coming from goods and services that rely on supply and demand. For real estate, there is a historic low in housing supply, and record high in demand.

According to the FHFA, price appreciation accelerated in December of 2021, showing that seasonality is non-existent in this market. In most of the regions that are tracked, home prices increased at the end of 2021 and in the first months of 2022. The Case Shiller Index shows that appreciation continues to accelerate after taking a few month break. Year-over-year prices continue to print historical increases from the month the year prior. From Selma Hepp, Chief Economist at CoreLogic:

“After some signs of slowing home price growth . . . monthly price growth re-accelerated again, indicating home buyers have not yet thrown in the towel.”

What This Means For Clients

Home price appreciation has a clear trend. It helps home sellers make the most possible. It hurts buyers by making homeownership less affordable. Whether you are a first-time home buyer, a home seller, or anything in between, home price acceleration will make things challenging. For sellers, even if you get the most for your asset, you have no where to go. For buyers, competition is fierce, prices are high, and mortgage rates are increasing. According to Len Kiefer, Chief Economist at Freddie Mac:

If you’re thinking about waiting until next year and that maybe rates are higher, but you’ll get a deal on prices – well that’s risky. It may be more advantageous to purchase this year relative to waiting until 2023 at this time.”