“The mortgage market is not at this point putting a ceiling on housing prices and housing demand,” said Susan Wachter, professor of real estate at the Wharton School of the University of Pennsylvania.
As property prices keep going up, more buyers are likely to be pushed out of the market. Evangelou said nearly 13 million households are expected to be priced out of homebuying this year. A year ago, a buyer would need approximately $61,400 in income to afford a median-priced home. Now, Evangelou said, a buyer needs around $82,000 to afford a home at the median price.
“That doesn’t mean housing prices don’t have the potential to fall; they do, and I’m certainly not forecasting this, but if we were in a recession that was a significant recession at the same time that interest rates were increasing, housing prices could flatten and then they could fall,” Wachter said, adding that the Fed is expected to tailor its policies in a way that will lead to a slow deceleration of home price growth, rather than an outright decline.
“I expect housing demand to cool off and the housing market to slow down in 2022. This is a good thing — we want to see a healthier and more predictable housing market,” Evangelou said, predicting about a 5% decrease in sales this year. “There’s going to be a drop in home sales in 2022 compared to 2021, but compared to 2019, it will still outperform.”