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There may be a light at the end of the tunnel for homebuyers weary from months of home price gains.

The Mortgage Bankers Association’s (MBA) latest mortgage finance forecast calls for the prices of new and existing homes to fall in the second half of 2022. The catch-22, however, is the MBA foresees mortgage rates nearing 4% by that time, canceling out much of the affordability homebuyers would gain through price drops.

Double-digit price growth sidelined many low-income and first-time homebuyers in 2021 and the fall offseason has not brought market cooling many hoped for. The median price for existing homes grew from $314,000 in Q1 to a projected $361,000 in Q4.

According to the MBA, existing home prices will peak in the first quarter of 2022 before leveling off for the rest of the year. New home prices are expected to follow a similar path, running about $30,000 to $40,000 above existing home prices.

While the MBA sees prices falling in 2022, it’s anything but a market crash or bubble burst.

After gains in Q1 and Q2, existing home prices are expected to fall year-over-year by -0.3% in Q3 and by -2.5% in Q4. New home prices won’t be down year-over-year until Q4 and only by -0.8%.

It’s also notable that the MBA is among the minority -- if not alone -- forecasting home prices to fall next year. Price growth forecasts range from 1.9% from CoreLogic to 16.0% from Goldman Sachs, and the average of forecasts from four major authorities is 9.8%.

Even if the MBA’s forecast is accurate, buying a house may not be more affordable in late 2022 than it is now, depending on interest rates.

Housing authorities across the board expect interest rates to rise throughout 2022. The question is by how much. Fannie Mae is on the low end, forecasting a 30-year mortgage rate of 3.1% while the MBA most recently projected 4.0% by the end of 2022.

Whatever the increase in rates, it will weigh on affordability.

Based on MBA’s price and interest rate forecasts, housing will still be more expensive next year.

The monthly payments on a $362,000 house in Q4 2021 would be less than the payments on a projected lower home price of $352,000 in Q4 2022.

Median existing home price Down payment Interest rate Mortgage payment
Q4 2021$361,000$36,1002.98%*$1,670
Q4 2022$352,000$36,2004%$1,806
*Based on Freddie Mac’s weekly survey published 11/10/21

The record home price growth in 2021 was unsustainable, and it’s unlikely 2022 will be as dramatic. However, there’s more to affordability than sticker price alone. Although the MBA home price forecast is a welcome sign for homebuyers, it does not directly translate to cheaper housing if mortgage rates head toward 4%.


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