After forecasting home prices to drop 2.5% in late 2022, the MBA is now predicting a steadier, more expensive housing market.
Homebuyers may not be in for the price relief they were hoping for in 2022.
In its latest mortgage finance forecast, the Mortgage Bankers Association (MBA) raised its home price projections and dialed back existing-home price drops previously forecasted in October. The industry group stuck with a 30-year mortgage rate forecast that shows interest rates rising steadily to 4% by the end of 2023.
Last month, the MBA predicted the median price of existing homes would decrease $9,000 from late-2021 to late-2022. But after a month of stubborn inflation, sustained demand, and higher-than-expected home price increases, it revised this prediction to forecast a steadier, more expensive 2022 market.
|Median existing home price Q4 2021||Median existing home price Q2 2022||YoY change|
The MBA also beefed up its forecast for the median price of new homes after realized data outpaced projections by $11,000 in Q3 2021. The latest forecast has the median new home price topping out at $411,000 in late 2021 and early 2022 before dropping to $399,000 in the final quarter of 2022.
This is likely a reflection of labor, lot, and material shortages that are holding up new home production. As these issues untangle in the next year, new homes will come online faster and at a lower cost, driving down the price.
After a year of record price gains in 2021, any price drop would be a welcome change of pace for homebuyers. However, mortgage interest rates may have more impact on affordability than home prices.
The MBA’s mortgage rate forecast remained unchanged from October to November, with the 30-year rate climbing to 4% by the end of 2022. Even if prices drop as the MBA now expects, the extra 0.9 percentage points on the interest rate could add more than $150 to a monthly mortgage payment based on the projected median existing home price.
|Q4 2021||Q4 2022|
|Median existing home price*||$360,000||$359,000|
|30-year mortgage rate*||3.1%||4%|
|Monthly mortgage payment||$1,686||$1,844|
Compared to its peers, the MBA is forecasting lower home prices in 2022. In fact, it’s one of the only housing authorities predicting homes prices to fall in the next year.
CoreLogic comes the closest with a forecast of 1.9% price growth from September 2021 to September 2022. On the other end, Goldman Sachs is predicting 16% price growth over the next year.
The wide discrepancy in forecasts is due to uncertainties regarding inflation and supply chain issues. Inflation threatens to drive up mortgage rates, which could dampen housing demand and perhaps cause prices to soften. On the other hand, ongoing supply chain issues could prevent new inventory from coming online, putting upward pressure on home prices.
The industry average is in the ballpark of 10% growth, but this figure is subject to change as forecasts are updated. If the new MBA forecast is any indicator, forecasts may trend higher in coming months as the industry deals with the unpredictability of inflation and supply chain woes.
For homebuyers, the takeaway is that inflation and rising mortgage rates threaten to cancel out the affordability gained from potential price drops. In that case, buying now is the way to hedge against rising housing costs.