Are We Headed for a Housing Market Crash in 2022?

housing market crash 2022

It’s no secret – the housing market has been red hot ever since the onset of the Coronavirus pandemic brought major changes to American society. Between a flood of first-time buyers entering the market, supply shortages due to manufacturing and shipping restrictions, as well as the pre-existing condition of low housing inventory, housing prices have increased rather quickly. Now, as 30-year investment mortgage rates are approaching the 6.5-8.5% range, a lot of real estate investors are wondering if there will be a housing market crash in 2022.

While we can’t predict the future with 100% accuracy, we can take a look at key indicators to determine the likelihood of a market crash within the next 6 to 7 months. Let’s break down what we’re seeing.

Interest Rates & Housing Prices are Increasing

Housing prices increased by 19% over the course of 2021, and have continued to increase in 2022. Interest rates have also been skyrocketing recently – since January, 30-year investment property mortgage rates have increased from 4% and are now approaching 7-8%. Since houses are getting more expensive, and it’s now more expensive to finance those houses, it’s logical to assume that there might be a pending correction in the housing market as homebuyers (particularly first time homebuyers) are priced out of it.

According to Fortune, new homebuyers can now expect to spend 31% of their income on mortgage payments, a high not seen since September 2007.

Housing Inventory Remains Low

Due to labor and supply shortages in the residential construction industry, housing inventory is lagging behind demand. Some estimates claim that the United States is about 4 million homes short. Because of this gap between supply and demand, upward pressure remains on pricing in the market – so despite indicators of a correction, this factor is preventing pricing from coming back down any time soon. Of course, given that mortgages are becoming more difficult for homeowners to afford, we could end up seeing an ease on inventory strains. 

Is There a Bubble In the Housing Market?

Economists generally agree at this time that the housing market is not yet overinflated to the point of bursting as it did in 2008. Many are quick to point out that the 2008 bubble was caused primarily by subprime mortgages, which is much less of a concern since the Dodd-Frank Act of 2010 outlawed shady lending practices that contributed to the crisis. However, the Federal Reserve Bank of Dallas did release a report warning that market activity shows signs of a bubble forming which should not go unnoticed.

Likelihood of a Housing Market Crash in 2022

With the above factors in mind, it seems that a housing market crash is not likely to happen in 2022. While increasing mortgage rates and inflated housing prices will keep many would-be homebuyers out of the market, chances are this will only lead to a slowdown in market activity. Zillow predicts that housing prices will still climb about 14.9%, which has been revised downward from previous estimates – of course, this is still much higher than the average expected growth rate of 4.6%.

While a crash can’t be completely ruled out, it is highly unlikely to happen within the 2022 calendar year.