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Home Prices to Appreciate More in 2022 Than Previously Expected, According to Fannie Mae

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Home prices appreciated 14% in 2021. The staggering rise in home prices pushed many Americans out of the home buying market, leading to an ensuing surge in demand for single-family home rentals. Late last year, analysts expected home prices to appreciate a substantial clip in 2022 but much slower than 2021’s record-breaking year.

A Fannie Mae forecast from October 2021 predicted that home prices would rise 7.9% in 2022, with the most significant gains occurring at the beginning of the year. However, Fannie Mae recently updated their forecast, with expectations for an 11.2% increase in home prices.

If that prediction comes true, market conditions in 2022 will nearly replicate 2021’s record-setting year. Americans will only see an average 3.9% increase in wages, meaning the housing market could appreciate 3.0% to 4.0%, or more, faster than wages. After last year’s red-hot market conditions, how can housing prices continue to appreciate much faster than wages? 

Experts originally predicted the housing market to cool off by the end of 2022, largely due to rising interest rates and high prices that would cool off demand. 

At this point, there is plenty of uncertainty in the housing market and the overall economy. Gas prices rose 14.0% in the first week of March to a record $4.30 a gallon. The rise in gas prices could exacerbate inflation by making the transportation of goods even more expensive. This could affect the housing market by slowing down new constructions and making the construction of new homes even more costly. 

Other issues like the national labor shortage are no doubt problematic. But the underlying problem in the housing market is a lack of quality supply. Without enough supply, homebuyers have to compete fiercely for a limited supply. While housing starts are picking up at an unprecedented rate in 2022, the supply has yet to meet the demand. This drives up costs more, even with high interest rates and prices that are already expensive. Meanwhile, builders struggle with supply chain constraints and rising construction costs, which further slows down the delivery of new inventory. 

February CPI Rises 7.9% Compared to the Year Prior

The Consumer Price Index (CPI) measures the average change over time in the prices consumers pay for goods and services. It’s a great indicator of inflation. According to the Bureau of Labor Statistics data, CPI rose 7.9% in February, beating out January’s 7.5% annual increase. The current level of inflation is the highest recorded since the early 1980s. 

A major driving force behind the increase in inflation is the rise in energy prices, which is only worsening due to the recent economic sanctions placed on Russia. Many economists fear that the CPI numbers in March could be worse, as the energy index is now up 25.6% compared to last year. In a recent statement, President Biden laid the blame on Putin.

“Today’s inflation report is a reminder that Americans’ budgets are being stretched by price increases, and families are starting to feel the impacts of Putin’s price hike,” Biden said in the statement. “A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions. As I have said from the start, there will be costs at home as we impose crippling sanctions in response to Putin’s unprovoked war, but Americans can know this: the costs we are imposing on Putin and his cronies are far more devastating than the costs we are facing.”

On Wednesday, the Federal Reserve announced the first rate hike since 2018 and signaled six more ahead. Interest rates have proven to be a great tool to keep inflation in check, and with an aggressive plan, we will likely soon see prices stabilize. When interest rates go up, purchase eases, from cars to homes. However, housing prices are still largely dependent on supply and demand. Unless construction picks up and the rates rise to the extent that’d actually curb demand from prospective buyers, home appreciation will likely continue well into 2022.

Tyler Williams
Tyler Williams
Tyler graduated from Virginia Commonwealth University in 2017 with a Bachelor's degree in Urban and Regional Studies. Currently based in Los Angeles, he works as a freelance content writer and copywriter for companies in real estate, property management, and similar industries. Tyler's main professional passion is writing about critical issues affecting big and small cities alike, including housing affordability, homelessness, inequality, and transportation. When he isn't working, he usually plans his next road trip or explores new neighborhoods and hiking trails.

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