Where Home Prices are Headed in 2022

By Robert Parsley
Lima One Capital

If you’ve bought a home (or tried to) in the last couple of years, you know that the market has been scalding hot, with homes staying on the market for an average of a week or less and going for well over asking price.

But 2022 is going to be a different story—and it’s important for anyone who is considering purchasing real estate to understand how different it might be.

Where the Market has Been and Where It’s Going

Home prices have spiked in the last two years by a whopping 34%, according to FRED economic data from St. Louis Fed. This uptick is due to a perfect storm of seller’s market factors:

• Record-low interest rates in 2020 and 2021
• A slowdown of new home construction thanks to pandemic-related government permitting shutdowns and building material supply-chain snafus
• Stay-at-home orders that led many to eschew urban apartment living in favor of single-family homes with an extra room for office space and a fenced-in yard for Fido

Despite a 17.8% increase in home prices in 2021, demand stayed strong, with a 15-year high in home sales (6.9 million), according to Freddie Mac.

But that meteoric level of home price appreciation (HPA) won’t continue, as higher interest rates (up from an average of 3.11% to an average of 5.25% as of May 2022) make it more difficult for many buyers to afford as much house.

Also, as many as 75% of homebuyers who purchased new homes during the pandemic shutdowns are now expressing regrets, according to a Zillow survey—which could be a prelude to more homes hitting the market again.

Mortgage applications have already slowed, and inventory levels are rising again, according to Fortune. With fewer buyers and more homes on the market, the pivot away from the strong seller’s market of the last two years has already happened.

What this Means to Homeowners and Homebuyers

These changes have led industry analysts to wonder where HPA is going in 2022. Moody’s predicts home prices will be flat over the next 12 months, and that they could fall in some markets.

CoreLogic, one of the real estate industry’s leading data aggregation and analysis firms, sees only a few markets with a very strong chance of a price dip. Notably, however, the markets most identified as overheated are out west or in the Northeast.

The Southeast, and South Carolina in particular, does not currently feature any markets in danger of a dip in HPA. That’s a boost of confidence for upstate homeowners.

And even with those anticipated dips, CoreLogic still predicts a 5.9% increase in overall U.S. home prices in the next 12 months. While that rate doesn’t match the up-and-to-the-right growth of the last two years, it should reassure both recent homebuyers that their equity will keep growing.

At the same time, potential homebuyers should find a slightly friendlier environment for making offers—if they can make the numbers work on the mortgage front.

What this Means to Real Estate Investors

At Lima One Capital, we work with real estate investors who are building, improving, and stabilizing neighborhoods across the United States. From our conversations with clients, it’s clear that real estate investors looking to find properties to hold as rentals or rehab as flips should find it a bit easier in the current market.

That’s good news, because investors play a key part in meeting housing demand by recapturing housing stock through rehab projects like fix and flips or value-add multifamily projects.

In sum, while the housing market and specifically HPA is changing in 2022, the fundamentals are still strong—unlike what happened in the housing crisis of 2008. While homebuyers and investors need to keep the latest data in mind as they pencil out new deals, they will still find sound investments in the 2022 housing market.

Robert Parsley is the Director of Business Development at Lima One Capital, the nation’s premier lender for real estate investors. For more information, visit limaone.com