Has the housing market finally peaked? Experts weigh in

Has the U.S. housing market peaked?

The real estate market has been hot for a few years now. Buyer demand has stayed strong and home prices have risen dramatically, despite continued low inventory and rising rates. But there are signs that the market may be starting to cool.

Does that mean the market has peaked, and we’re going to see things normalize in the second half of 2022?

We reached out to several experts in the industry to gauge their opinions on the current state of the housing market and where they expect home prices, inventory, mortgage rates, and demand to land across the rest of 2022.

What kind of a housing market are we currently in?

Much of the U.S. has been in a strong sellers’ market over the past few years. The reason? Buyer demand has been high, with purchasers outnumbering sellers and a continued lack of housing supply to meet that demand.

“A seller’s market is one in which sellers have the negotiating leverage because demand for housing is higher than the supply of available homes,” says Dennis Shirshikov, strategist with Awning.com, a tech-enabled brokerage for real estate investors. “Low rates, a bull market, accessible refinancing, and the coronavirus lockdown have prompted people to move, purchase their first homes, buy vacation homes, and invest in properties.”

The housing market never truly ‘peaks.’ “It only warms and cools — and sometimes booms — over time, alternating between a buyer’s and seller’s market. But it always keeps going up.”

–Vincent Chan, CEO, Christina real estate development and investment firm

Put another way, a seller’s market is one positioned in favor of existing homeowners instead of aspiring home buyers.

“We’ve been in a strong seller’s market for some time now because of a shift in the mindset of millennials regarding homeownership. Millennials used to be the enemy of real estate, but now they are the largest consumer, comprising 43% of buyers in today’s market.” explains Rogers Healy, owner and CEO of The Rogers Healy Companies in Dallas. “The decision millennials have collectively made to stray away from rental properties and own real estate has shifted the market completely.”

What does it mean for the housing market to “peak”?

When experts indicate the market has “peaked,” they mean that the highest growth rates are now behind us and the market is starting to cool off, per Shirshikov.

“Once annual home price growth starts trending downward, the market is said to have peaked. Since home prices display strong seasonal peaks and troughs, annual home price growth is used as a barometer for determining market ‘hotness,’” notes Nik Shah, CEO of Home.LLC in San Francisco.

Healy agrees.

“Typically, this means that prices have begun to level off. When the market peaks, it reaches an ultimate high — with prices and mortgage rates at an all-time high — before descending,” he adds.

Will the housing market peak in 2022?

Vincent Chan, CEO of real estate development and investment firm Christina, believes that the housing market never truly “peaks.”

“It only warms and cools — and sometimes booms — over time, alternating between a buyer’s and seller’s market. But it always keeps going up,” Chan continues. “Think about a hiking trail going up a mountain from the side: Sometimes it gets steeper, sometimes it dips back down, but it always keeps climbing.”

To illustrate Chan’s point, just look at median home prices over the last 50 years. Despite a major housing crash in the aughts, prices have continued to rise over time:

Median home prices over the last 50 years:

• 1972 (Q1): $26,200
• 1982 (Q1): $69,600
• 1992 (Q1): $119,500
• 2002 (Q1): $188,700
• 2012 (Q1): $238,400
• 2022 (Q1): $428,700

Source: St. Louis Federal Reserve

Some believe the current seller’s market will continue to remain relatively strong.

“Individuals continue to purchase their first homes, even at higher interest rates, and new homes are not being constructed nearly as quickly as is needed to meet the current demand,” Shirshikov says.

But others feel strongly that we are approaching the peak of the seller’s market due to a greater number of price adjustments by home sellers recently, rising mortgage rates, and an increase in housing inventory.

Signs that the market may be cooling off

“Overall, there are multiple signs indicating a transition toward a market favoring buyers, which signifies that the housing market has already peaked,” Jason Gelios, a top Realtor in Southeast Michigan, says.

Shah predicts that the housing sector will peak by the end of this month before beginning to cool down.

“We can already see the signs of an impending slowdown. Inventory is rising rapidly, more homes are taking price reductions before finding a buyer, and there’s been a sharp fall in affordability. There has never been a bigger gap between what the median homeowner can afford to pay for a home and what the median home costs,” says Shah.

Agents agree the market could be softening

Consider the results of a recent HomeLight survey, in which real estate agents were polled about the state of the housing market:

• 94% of agents believe it’s still a seller’s market
• 44% say bidding wars are on the decline
• 34% say price reductions are becoming more common
• 33% of agents indicate inventory is rising in their market

Of course, the situation buyers will face varies widely from one market to the next. Some areas could be cooling off more rapidly, while others may stay hot for years to come.

If you’re wondering what to expect in your local housing market, connect with a Realtor or real estate agent who can share their expertise and walk you through your home buying options.

What’s coming next for the housing market?

The pros offer a range of different predictions about where the real estate market could end up in 2022.

Inventory will likely remain tight

“We forecast that housing inventory will remain heavily constrained, especially with rising mortgage rates,” says John Hunt, principal, and chief analyst for Atlanta-based MarketNsight. “If you are a prospective seller, even if you could find a home to purchase, you won’t want to swap your current 3% mortgage for a 5% mortgage. Therefore, demand will continue to outpace our ability to supply.”

Shirshikov adds that because we are still early in the work-from-home movement, you can expect to see more tech workers moving to remote locations, with some even living in their vacation homes.

“While new inventory will become available, it won’t be nearly quick enough. Most developments in good areas are oversold and have even stopped accepting people on their waiting list at this time,” says Shirshikov. “Mortgage rates will also rise, possibly 2% to 4% higher than today, and banks will likely tighten lending standards further.”

“But,” he continues, “we should see mortgage rates moderating and the Fed backing off its rate hike posture toward the end of the year. Prices should moderate across 2022, going up 10% to 15% before moving to a normal 4% to 6% appreciation in 2023.”

Rising mortgage rates could work in favor of remaining buyers

Gelios thinks we’ll see housing values continue to stabilize, less competitive offers per home on the market, and sellers realizing they have less negotiating power with buyers.

“Overall, the second half of 2022 will reflect a lower demand for housing because of the increase in mortgage rates,” he says. “However, this is when we will see first-time buyers entering the market to have a chance at purchasing a home.”

“Fortunately, we will see an increase in inventory over the rest of the year, but the bad news is that mortgage rates are slated to rise possibly as high as 7% by the end of 2022,” he adds.

Demand from Millennials should remain strong

Others anticipate a housing market that will remain strong over the next six months and into the foreseeable future.

“Demand will remain robust thanks to millennials, although mortgage rates will continue to creep up and prices will stay bullish because home appreciation is still outpacing the stock market,” explains Chan.

Remember that spring represents the peak months of the real estate market.

“That’s why I anticipate, once fall and winter come around, we might see more of a fluctuation in prices, demand, inventory, and mortgage rates. The number of people moving will slow down, and housing supply will remain unstable,” Healy says. “Consequently, demand and prices will jump.”

Your next steps

No one can say for sure how the housing market will trend in the second half of 2022. How high will mortgage rates go? How much will buyer demand slow down? How many new units will hit the market?

As always, that’s why it’s tough to time the market as a buyer. Rather than waiting for a housing market peak and hoping prices will fall, focus on your own situation. Find out how much you can afford at today’s mortgage rates and decide whether buying now makes sense for your budget and lifestyle.

If you’re ready to get started, connect with a mortgage advisor who can walk you through your options and help you find the right price point for your needs.