Will Home Prices Drop in 2022?

With the new year just around the corner and new years resolutions in full spring, many of us are left wondering what the new year will bring. 

2021 was certainly unexpected.  With it, we were brought skyrocketing home prices, a tight auto supply, and unending product shortages.  All of those factors combined to bring us to an inflation rate of nearly 7%.  With 2021 now in the rear-view mirror, speculation is rising from pundits to politicians, and from laymen to experts about whether 2021 was a blip – a temporary rise in inflation due to shortages that will recover to pre 2021 level prices – or if it, like covid, is here to stay.

While there are a lot of unknowns right now, some things are likely certain.  The rising prices in consumer electronics due to the chip shortage is almost certain to reverse course eventually, though probably not until 2023.  Expect prices in 2022 to inflate modestly, before reversing course in 2023.  If you can do without a new laptop or computer for another couple years, it may well in your best interest to wait.  Look to the falling price of NAND flash for an example of what may be to come.  But if what about bigger purchases, like a car or a house?  If you’re like me, you’ve been steadily saving up money to buy a house for years, only to see the prices shoot through the roof in 2020/2021.  So now you’re left wondering what lies in store for 2022.

Will Home Prices Drop in 2022?

To answer this question, we need to look at what factors are in play when it comes to housing prices. The 4 largest factors that affect housing prices are 1)The strength of the Economy 2)Interest Rates 3)Population Demographics and 4)Government policies.

In 2021, the economy was on a roar.  Overdemand and undersupply were probably two of the most common problems in business that year.  Good problems to have if you’re a business owner. Interest rates were at historic lows, Millenials finally began eschewing apartment living for single-family homes and a government ban on evictions and foreclosures kept supply tight.  All of these factors contributed to a year over year inflation rate of nearly 20%

So what will 2022 look like? Well, economists expect the economy to continue growing in 2022, although potentially at a lower rate than 2021. The upside here is that if the economic growth rate stabilizes from the see-saw of 2020-2021, supply chains will eventually be able to catch up to demand, and prices for goods and raw materials like timber or steel (used in the construction of new homes and buildings) could start to fall. On the whole, though, expect it to be similar to 2021.

Interest rates are almost certainly set to rise in 2022, as the fed battles to confront runaway inflation.  This will act as a barrier to rising home prices, as increased interest rates will make homes less affordable.  If you’re interested in buying a home in 2022, this could work in your favor.  (Although the rising interest rates will mean your mortgage payment will be higher.)

In terms of population demographics, millennials will continue transitioning into single-family houses, with an undersupply of homes causing rates to rise. (Although an aging demographic will likely result in some consolidation here.  Not enough to offset the impact millennials are having, but enough to reduce it.

Government policies will start to work in a potential homebuyer’s favor though in 2022. Eviction and foreclosure moratoriums in many states are set to expire on January 1st 2022, and so are federal pandemic-era foreclosure protections.  This will result in a steady supply of additional homes for sale as delinquent homeowners are forced to begin making payments, or sell their homes. This will help alleviate home price inflation.

How Will Home Prices Compare in 2022 to 2021?

Well, you can see above that several factors that drove up the price of homes in 2021 will no longer be in play in 2022 (rock bottom inflation rates, and a foreclosure moratorium).  This means that home prices in 2022 will not appreciate nearly as fast in 2022 as they did in 2021.

Although the home prices will not inflate as quickly in 2022, there are still several headwinds to lowering home prices in the areas of a booming economy and changing demographics that favor single-family homes. These headwinds will likely be enough to keep prices from falling in 2022.

So will home prices drop in 2022? Unfortunately, the answer to that question is almost definitely a no.  Home prices will continue to rise through 2022 in all likelihood (although probably at sub double-digit rates)

With the moderate rise in home prices in 2022 following the skyhigh rise in 2021, is 2022 the year to buy a new home? Not unless you have to. Prices are likely to remain elevated for a few more years to come by the looks of it.  If you can hold off on entering the housing market there may be a better time to do so once inflation starts to settle.


As always, this information represents my personal opinion and is in no way meant to be taken as financial or legal advice.

Thanks for asking the savings guy. 




Leave a Reply

Your email address will not be published.