‘Continuing home price deceleration.’ Here’s what 5 economists and real estate pros predict will happen to the housing market this year

When will home price growth really slow down? Will mortgage rates continue their upward climb? What do I need to know if I’m trying to buy a house now?  These are all questions we’re hearing from readers, peers and others, so we asked top economists and real estate pros to break down what exactly they think will happen in the housing market this year. 

Mortgage rates could continue to rise — but it depends on the economy

Already this year, average 30-year fixed rates have climbed from a little over 3% in January to around 6%, data from Bankrate shows. And it’s possible the growth won’t stop there. (See the lowest mortgage rates you can get here.)

Realtor.com chief economist Danielle Hale says it depends on a lot of factors, including the jobs reports. “If the jobs report is too strong, it’s likely to spark a new uptick in mortgage rates in anticipation of bigger Fed action.

And until we see sustained evidence that inflation has peaked, there’s still risk mortgage rates will climb higher, says Greg McBride, chief financial analyst at Bankrate. But he adds that the prospect of the Fed front-loading their interest rate hikes and doing more sooner rather than later, may actually help keep a lid on mortgage rates or even bring them down. “More rate hikes now means fewer rate hikes later, it means the timetable to peak interest rates gets moved up and it means the eventual decline in rates due to a weak economy also happens sooner,” says McBride.

And here’s an interesting take: “Real mortgage rates, the mortgage rate less the inflation rate, are negative for the first time in 40 years, so mortgages are not as expensive as they look when controlling for inflation. Inflation itself tends to serve as a floor for house price growth, with most quarters over the last 40-50 years facing higher home price growth than consumer price growth,” says Mischa Fisher, chief economist at Angi, an internet services company that connects users with vetted pros for home projects and services.

Home price appreciation will cool …

“Due to the housing shortage, home prices will continue to rise in the following months. Although inventory is improving, it will remain tight as home builders have cut down on single-family home production,” says Nadia Evanhelou, senior economist and director of forecasting at National Association of Realtor (NAR). However, as many home buyers are priced out due to low affordability, home prices won’t rise as fast as they did in previous months. “There will be continuing home price deceleration. Nevertheless, home prices will likely continue to experience double-digit year-over-year appreciation in August,” says Evangelou.

For her part, Hale says housing prices, both median and sales prices, tend to slow down as we approach the end of summer. “I expect this year will be typical in that respect. On top of the usual seasonal slowing, housing price growth should continue to ease up as the housing market resets,” says Hale. (See the lowest mortgage rates you can get here.)

… But overall home prices will still rise

For his part, Bankrate’s McBride says asking prices are coming down from moonshot levels as prospective buyers pull back. “Selling prices will level out as the market cools but this cooling is just a return to the type of balanced market that has been absent the past couple of years,” says McBride. 

“In August, I expect house prices to rise by mid-single digits year-over-year for four reasons,” says Angi’s Fisher. Among them, common repeat sales indices like Case-Schiller and the FHFA are lagged by a few months so they won’t pick up the latest day-to-day conditions. And even though affordability is at a 30-year low, there are still supply and demand imbalances in housing stock in a lot of desirable metros. What’s more, downward price pressure in housing is very common and unless economic conditions force people to sell, they prefer to wait. Moreover, inflation is a wild card, she adds.

Demand is cooling

Demand is pulling back at today’s prices, and home shoppers are fewer and farther between than they’ve been for much of the pandemic, says Zillow senior economist Jeff Tucker. “That’s cooling the market and pushing it toward the rebalancing it needs. Very expensive markets, where home buyers are already on the edge when it comes to affordability and therefore more sensitive to mortgage rate changes, in addition to pandemic superstar markets that saw red hot growth during the past 2 years, are most likely to slow,” says Tucker. 

Meanwhile, uncertainty is growing over what the economy holds, therefore diminishing the willingness of buyers to go all-in and max out their housing budgets when widespread inflation means other important categories like gas, groceries and utilities are eating up larger shares of their paychecks, says Hale. “By region, we’re likely to see the biggest slowdown in home price growth in the West and South, where both listing and sales prices are highest and where inventory has had the biggest turnaround so far,” says Hale.