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Housing Predictions with a Grain of Salt: Where Are U.S. Home Prices Headed?

If you want to buy a home, it's the best of times and it's the worst of times.

by Andra Hopulele
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2 min. read

At the beginning of the pandemic, housing experts and real estate analysts predicted that home prices would plummet. Two years later, not only did prices not fall, but home price appreciation has reached its highest levels in decades: In March, the median listing price reached $405,000 after a 26.5% year-over-year increase.

This is just one of the reasons why all market participants should take Bank of America’s next predictions with a grain of salt, as Fortune Editorial Director, Lance Lambert, underscored in his article. According to Bank of America, Federal Reserve Chair Jerome Powell’s decision to increase rates in order to tame inflation will bring about higher mortgage rates. In fact, financial markets are already increasing mortgage rates, which could have unwanted long-term consequences:

“While climbing mortgage rates could pour some cold water on the housing market over the long term, Bank of America says it could increase buyers’ urgency—as they rush to lock in rates—in the short term. Rising household incomes, favorable demographics, and “shifting preferences due to remote work” should also put upward pressure on price growth, writes Bank of America.”

What Will 2022 Bring for Homebuyers?

While upping rates might help with inflation, it won’t be as helpful in home buying. In fact, it might be a double whammy for those hoping to buy: For present buyers, spiking mortgage rates could ruin their buying plans if they were maxed out and hoping for mortgage rates to stabilize. Conversely, for future buyers, this measure could actually drive prices even higher as other buyers jump on the opportunity to lock in the currently more favorable rates.

Bank of America analysts predict that, despite its drawbacks, the rate hike will cause home prices to decelerate. They believe home prices will be up 10% by the end of the year. This is actually an improvement considering that, between December 2020 and December 2021, the Case-Shiller U.S. National Home Price Index jumped a staggering 18.8%.

Does 2023 Get Any Better?

According to Bank of America, yes.

The institution has good news for home-seekers hoping to buy a home in 2023, predicting a much healthier 5% home price increase for next year. Currently, there are no predictions of prices dropping or stagnating, so a more moderate increase is the best news that buyers can hope for. This could also mean fewer bidding wars, as Lambert emphasized in the Fortune article referenced above:

“Bank of America predicts that U.S. home prices will rise just 5% in 2023. That would put home price growth back into a normalized rate of appreciation and would likely result in fewer bidding wars.”

The even better news? It comes again in the form of a prediction, this time from the Dallas Fed. Although the fast-increasing home prices are concerning and might bring about worries about another housing bubble, the Dallas Fed states that, between homebuyers’ caution and safer lending practices, the market is in a much better place than it was right before the 2007 crisis.

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