Why Housing Prices Aren’t Likely to Fall Anytime Soon, and 5 Things Homebuyers Should Focus on Instead

A photo to accompany a story about buying a home Amanda Andrade-Rhoades for The Washington Post via Getty Images
Pictures here is an open-house sign for a Washington, D.C. home for sale on July 12, 2020. Low inventory and stiff competition is driving up home values, experts say.
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If you’ve been waiting for home prices to go down before you buy, you might be waiting a long time, experts say. 

Although it might be tempting to time the market, it doesn’t look like home prices will be decreasing anytime soon. Prices may rise at a slower rate than the record 20% increase we witnessed at some points last year. But Dr. Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors, predicts that home prices will rise at a slower rate of 5.1% in 2022.

When it comes to buying a home, trying to time the market is risky, especially since experts predict that costs will continue to rise. Many real estate experts agree that by prioritizing your personal finances, you can buy a home when the timing is right for you — rather than waiting for a downswing in the market. 

Here’s what you need to know. 

Will Housing Prices Fall Anytime Soon?

The pandemic-era housing market has seen soaring prices and fierce bidding wars due to supply chain disruption, low housing supply, and increasing buyer demand. Although real estate experts expect this level of competition to ease somewhat, they don’t predict that house prices will fall anytime soon. 

“Our prediction is that home prices won’t actually fall,” says Lautz. “We do expect that home prices will moderate in 2022, but we’re continuing to see home price growth.”

A lack of inventory is one of the reasons behind rising home values, points out Danielle Hale, chief economist at Realtor.com, who agrees that prices aren’t going to decline soon. “The reason why we expect [home prices] to slow but not actually decline is because we still have very few homes available for sale,” says Hale. “In an inventory shortage, the way the market balances that is by pushing prices higher.”

In fact, Hale says that Realtor.com’s data shows that we have 5.8 million fewer homes than we need, a shortage that would take a minimum of five years to overcome. Given this lack of inventory, it seems unlikely that house prices will decrease this year. 

Timing the Market: Waiting Out Home Prices Going Down

Instead of trying to time the market, consider basing your homebuying decision on your personal timeline. 

“My advice when the homes are in short supply, is if you think you’re ready financially and emotionally to commit to being in one place for a long time, that’s when it makes sense to buy a home,” says Hale. “And if you’re ready, and you start shopping, you should buy when you find a home that works for you, meets your needs, and fits your budget.”

She also advises prospective homebuyers to think long term, especially if they’ll be committing to a 30-year mortgage

“Your best bet is to think very long term,” says Hale. “You want to think about [at least] the next five to seven years, but not necessarily about very short-term fluctuations.”

Pro Tip

Instead of trying to time the market, consider buying a home when the time is right for your personal finances. By saving for a down payment and shopping around for the best rates, you can move quickly when you find the right home.

Timing Interest Rates: Waiting Out Mortgage Rates Going Down

Waiting for mortgage rates to go down probably won’t do you any favors, either. Hale expects mortgage rates to go up in 2022, though global uncertainty, such as the conflict in Ukraine, can cause them to unexpectedly dip. 

“Anytime you have a period of uncertainty, people are constantly adjusting and readjusting expectations,” says Hale. “That can lead to ups and downs in mortgage rates and make it really difficult to know what’s going to be ahead.”

If mortgage rates do fall, she warns that this decrease can be a double-edged sword. 

“Mortgage rates may fall if the economic outlook appears to worsen, but then that increases the odds that the jobs market is not doing as well or your incomes are not going to do as well,” Hale says. “So it’s sort of a short term benefit — you may be able to lock in a lower interest rate, but in the context of this broader economic uncertainty, I don’t know that it’s necessarily a good thing for homebuyers.”

So, what can you do in the face of this interest rate volatility? 

“I would say at this exact moment to stay in close contact with your mortgage broker,” advises Lautz. “They’ll work to get you the best rate.”

How to Find the Best Financing

While you might feel discouraged by rising real estate costs, there are ways to help yourself save. 

1. Rate-proof your budget 

First, Hale recommends “rate-proofing” your budget by estimating how much house you can afford with a range of possible mortgage rates. 

“You can do this on affordability calculators,” she says. “Try out a couple of different mortgage rates. so you can know very specifically what a change in mortgage rates means for your monthly costs for any particular home.”

2. Get your financial house in order 

Lautz also recommends getting your finances in order so you’re ready to make an offer if the right home comes along. 

“I would suggest making … your debt-to-income ratio the best you can get it [and] your credit score as high as you can get it,” Lautz says. “Make sure that you have money in reserves, as well as your down payment and closing costs.”

3. Save up for your down payment 

Affording a down payment can be challenging, so Lautz recommends saving wherever you can. 

“Maybe that means a tax refund or a bonus,” she says. “Saving those extra gifts from relatives can be helpful. Homebuyers today need to essentially diversify where they’re finding their down payment, because home prices have gone up.”

Lautz also suggests looking to see if you qualify for homebuyer assistance programs.  

“I would also say — and I especially encourage first time homebuyers to do this — is to check out hud.gov and your local community because there may be programs available [to help with] down payments.” 

4. Educate yourself so you can move quickly  

Lautz adds that first-time homebuyers should do their homework on terms like appraisal gap and contingency so they’re ready to move quickly. 

“Educate yourself so that if you fall in love with that first home and you’re ready to make an offer, you can quickly make an educated decision,” says Lautz. “You want to make sure that you stand out against other competitive offers, because the typical home is receiving three to four offers today.”

5. Shop around for the best rate 

Finally, it’s a good idea to shop around with multiple mortgage lenders to find the most affordable financing. Not only will having a preapproval letter give your offer a competitive edge, but getting prequalified can give you a sense of your rates with no impact on your credit score. When it’s time to buy, keep your mortgage applications to a 45-day window to protect your score.