The annual pace of home price rise, which peaked at 20% in August 2021, was expected to progressively decelerate this year as some normalcy returned to a property market that had surged for much of the pandemic, according to many real estate businesses heading into 2022. However, several specialists are now doubtful.
Zillow predicted in December that the 12-month rate of home price growth will slow to 11% by the end of the year. Then, in January, Zillow changed that projection, predicting a 16.4 percent increase in 2022. Zillow revised its projection upward last week, now predicting that the year-over-year pace of home price growth will peak at 21.6 percent in May and end the year at 17.3 percent. Simply said, Zillow expects the housing market to heat up even more in the spring of 2022, rather than cool down.
What exactly is going on?
This year, rather than inventory levels beginning to normalize, the situation is deteriorating. The number of residences for sale in January 2021 was 26% lower than it was in January 2020. We were 42 percent below January 2020 last month. Because of the scarcity of inventory, buyers will once again be compelled to bid up prices in order to secure a home.
"Monthly home value growth is expected to continue accelerating in coming months… The robust long-term outlook is driven by our expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes," according to the Zillow researchers.
If home price rise in May reaches 21.6 percent year over year, it will be the biggest since the data was originally recorded in the 1980s. It would also be more than five times more than the average yearly rate (4.2 percent) for the previous four decades, and far higher than the greatest 12-month price increase (14.4 percent) seen in the years leading up to the 2008 housing meltdown.
But Zillow is not the only one who thinks so.
CoreLogic predicts a 3.5 percent increase in home prices over the next 12 months. Meanwhile, Fannie Mae anticipates a 7.6% increase in home prices this year. If either CoreLogic's or Fannie Mae's predictions come true, it will be a considerable slowdown from the levels of price growth we have seen in the last year.
Why is there so much ambiguity about price increases?
It all comes down to mortgage rates, which are starting to rise now that rate hikes by the Federal Reserve appear to be a foregone conclusion. The average 30-year fixed mortgage rate issued in December was 3.11 percent. According to the Mortgage Bankers Association, the rate has risen to 4.05 percent this week. As interest rates rise, it is possible that some purchasers will be priced out of the market.
Normally, a rate hike of this magnitude would force the market to immediately cool. However, not all housing analysts believe it will have a negative impact on the spring market in 2022: There are so many stalled homebuyers that even if some are priced out by rising rates, others will step in to fill the void.
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