If home prices do rise another 11.2%, it would mark a deceleration from the current growth rate. However, that would hardly represent relief for home shoppers. After all, the typical raise that corporate America plans to dole out this year is only 3.9%. But Fannie Mae does still think relief will come, it just won’t happen until 2023. Next year, Fannie Mae projects home prices will rise 4.2%—with the median existing home price jumping to $395,000.
Why are 2022 forecasts suddenly getting revised upward? It boils down to the lack of homes for sale.
For much of the pandemic, the underlying issue in the housing market has been a lack of inventory. A demographic wave of first-time millennial homebuyers, enticed by pandemic-induced low mortgage rates, jumped into the market and dried up inventory. Still, the inventory problem was supposed to ease a bit this year. Instead of rising, however, inventory levels actually fell further—which has only intensified the housing boom.
That should change by next year. Already, mortgage rates are spiking as an inflation-concerned Federal Reserve hints at looming rate hikes. Rising mortgage rates, of course, cause monthly payments on new mortgages to also rise. Those higher mortgage payments, coupled with already astronomical prices, should pressure more buyers to back off. When that happens, home price growth could finally begin to normalize. Or at least that’s what Fannie Mae believes.