Why a 2022 Housing Market Crash Is Unlikely

December 21, 2021
Last updated:
June 24, 2022
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In This Article

Home prices have climbed quite a bit over 2021, so much so that many worry that a housing market crash is on the horizon. Is this a valid concern?

How does the rate of increase in home prices in 2022 compare to 2021? Is there a “housing bubble” that could burst at any moment? More importantly, is 2022 a good time to buy a house?

Will the Housing Market Crash In 2022? Experts Say No

Given the skyrocketing prices of homes over the recent past, some might argue that a housing market crash is imminent. However, experts and data suggest otherwise.

Though things may slow down a bit, a crash is highly unlikely.

What’s keeping things stable?

Low inventory.

Housing inventory has been a thorn in the side of homebuyers as of late, which has been a key factor in the rapid rise of home prices over the past few months. As demand among buyers continues to remain strong, existing inventory has not been sufficient to keep up.

Experts anticipate that this situation won’t change much through the end of 2022. According to Fannie Mae, a total of 6.8 million new and existing homes are expected to sell by the end of this year. In 2022, about 5.6 million existing homes are expected to be sold, along with 893,000 new home sales.

Millennials entering the market.

The Millennial demographic makes up a large portion of homebuyers in the US, and next year, they’ll continue to be a driving force behind the national housing market. Many of these Millennials will be getting into the real estate market for the first time, thereby supporting entry-level home sales, which will help keep the US housing market buzzing over the next few years.

Household formations calculated based on the 27-35 year old population is well over double the rate of actual homes being built. When taking into account a conservative ownership rate there continues to be a massive gap between the number of homes that need to be built to keep up with demand vs. the actual number of new homes being built. This alone is putting pressure on prices which won’t change in the foreseeable future.

That said, Baby Boomers will also play their part, especially as housing prices continue to increase. While Millennials may be buying homes in the lower price range, Boomers may help keep the more expensive price range busy, particularly after realizing significant gains in equity from appreciation in value of the homes they’ve held onto for decades.

In fact, most homeowners have positive equity in their homes these days. According to Attom Data Solutions, the typical single-family home sale across the country generated a gross first-quarter profit of $103,000, well above $75,001 from a year earlier.

Improvements in the US economy.

The economy took a massive hit due to the recent health crisis, but things have been improving. Interestingly, the real estate market was one of the few industries that remained very strong throughout, and the same is expected in 2022.

As the economy continues to improve, so should consumer spending. With Americans getting back to work, their borrowing power will increase and will be in a better position to purchase a home.

Will the Housing Market Boom Higher In 2022? Again, Unlikely

As is the case with any other product, the price of real estate comes down to supply and demand. Over recent months, demand among homebuyers has been strong, while housing inventory has been very tight. This dynamic has caused home prices to soar.

Over the past 12 months, the average price of a home in the US has jumped 17.6%, according to Realtor.com.

Strong yet stable buyer demand.

Real estate professionals anticipate homebuyer demand to remain strong into 2022. In September 2021, there were around 3.7 offers per home put on the market, and now that number has bumped up to around 5 offers per home.

These figures suggest that buyer demand has remained fairly strong yet stable, which is expected to be the case over the next few months.

Continued tight inventory.

While buyer demand remains high, housing inventory is seeing the opposite. Year-over-year, the number of listed properties has decreased nearly 20% compared to 2021. Seller activity continues to be much slower compared to buyer traffic.

Where Will Housing Prices Go In 2022? Ceiling In Sight?

Real estate experts anticipate home prices to continue rising in 2022, though not necessarily at the same rate that we saw over the course of 2021.

For instance, Zillow predicts home prices to increase at a rate of 10.8% over the next 12 months, compared to 19.2% over the course of 2021.

In addition to the housing inventory shortage that we’ve already discussed, what other factors will contribute to the continued increase in home prices in 2022?

Low mortgage interest rates.

Low mortgage rates make home buying more affordable. Even though home prices have soared over the past year, the current super-low interest rates have still made it somewhat feasible for buyers to get into the market.

Over the past three years, mortgage rates have been on a steady decline, though they’ve recently shown a slight uptrend. In the fall of 2018, the rate for a 30-year fixed-rate mortgage peaked at 4.94%.

It plummeted during the pandemic, reaching a low of 2.68% in December, 2021, the lowest conventional mortgage rate average in 30 years. The rate for the same mortgage type now sits at 5.91%, well above 2018’s peak. That discrepancy makes a huge difference in the overall cost of a mortgage and monthly mortgage payment amounts. 

According to earlier predictions from the Mortgage Bankers Association (MBA), the average 30-year fixed-rate mortgage rate was anticipated to reach 3.7% by the third quarter of 2022, and 4% by the end of the year. 

We’re well past 4% now, and it remains to be seen if the Fed will react and try to slow runaway rates in order to balance the economy. In years past, rates reached over 10% or more, but it is doubtful we’ll see those rates again – although some predict we could hit 7% before 2023. Increasing mortgage interest rates is one reason why home prices may slowly stop rising  in 2022.

Today’s Mortgage Rates

Work from home trends.

The health crisis forced many Americans to work from home for months in an effort to avoid virus transmission. During this time, many Americans discovered that their current homes did not suit a work-from-home arrangement. In turn, some chose to make improvements to their homes, while others opted to move into homes that accommodated home offices.

This trend is not expected to die down any time soon. In fact, the opposite is expected. Remote workers will likely continue to spur the housing market in 2022, thereby contributing to the ongoing increase in home prices.

Should You Buy a Home In 2022?

The rate of increase in home prices might start to slow down somewhat in 2022 compared to 2021, but they’re still on an upward trend. Further, interest rates are expected to rise over the next few months as well.

Both of these factors combined make a sound argument for buying earlier in the new year.

Let’s illustrate how much you could potentially save by getting into the market sooner rather than later:

Mortgage Loan AmountMortgage Interest RateMonthly Mortgage PaymentTotal Amount of Interest Paid
$300,0005.91% (today’s rate)$1,781.33$341,278.66
$350,0007% (potential rate by year-end 2022)$2,328.56$488,281.14

While these are just estimates and examples, it’s easy to see how just a small increase in both home prices and mortgage interest rates can make such a big difference in how much you pay on your mortgage, both monthly and over the entire loan term.

As such, you may want to consider buying a home earlier in 2022 instead of waiting too long.

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Why Choose Sammamish Mortgage?

At Sammamish Mortgage, we can help you get fully preapproved for a mortgage, regardless of the state of the current housing market.

Sammamish Mortgage has been in business since 1992, and has assisted many homebuyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help you get pre approved. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon, and Washington.

Contact a loan officer if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.

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