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2022 summer housing market predictions

Summer housing predictions
KenWiedemann/Getty Images
Summer housing predictions
KenWiedemann/Getty Images

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As the spring real estate season comes to a close, mortgage interest rates continue to hover above 5 percent, prices remain high and the tight supply of homes for sale persists, making matters challenging for home shoppers. That combination could result in a slowdown in demand, forcing sellers to lower prices.

Curious how the real estate market will shake out this summer? Eager to learn if and how rates, buyer traffic and housing inventory will change before fall? We’ve asked several experts for their summer housing market predictions.

Will the housing market stay hot?

Prognostications from the pros vary when it comes to forecasting the housing market climate this summer, but many signs point to yes.

“The market will continue to see relatively strong demand from buyers and an elevated rate of home price growth, despite slowing notably from ultra-hot early spring 2022 conditions,” says Selma Hepp, deputy chief economist for CoreLogic in Irvine, California.

Ralph DiBugnara, the New York City–based president of Home Qualified, seconds those sentiments. “The summer market will stay mostly high because of an increased urgency to buy,” he says. “This urgency is spurred by fears of further rising rates and more homes coming to market, due to more sellers wanting to cash in on the equity they’ve gained over the last few years.”

Others aren’t quite as bullish on a hot market between now and September.

“Real estate will continue to transition away from sellers and favoring more buyers as we progress through mid- to late 2022, with a slight increase in the number of homes that hit the market,” says Jason Gelios, a Realtor with Community Choice Realty in Southeast Michigan. “I also predict that we will see an increase this summer in first-time buyers entering the market in an effort to achieve homeownership.”

Greg McBride, Bankrate’s chief financial analyst, anticipates demand dropping sharply over the next few months due to high home prices and higher mortgage rates. “Even homebuilding activity is slowing due to supply constraints and cooling demand,” he says. “But while the market is cooling, prices are not necessarily dropping. We will still see home price levels that are 15 to 20 percent above what a home would’ve sold for six to 12 months ago.”

National Association of Realtors (NAR) senior economist and director of forecasting Nadia Evangelou points out that existing home sales have dropped over the last three months while contract signings have slipped in the previous five months. “However, due to seasonality trends, I believe the housing market will continue to outperform compared to pre-pandemic. Keep in mind that June is traditionally the busiest month for the real estate market,” she says.

Are we headed toward a housing bubble?

A housing bubble is typically created when there is high demand, a surplus of supply, and homes are easily obtainable via loose credit, says DiBugnara.

“Fortunately, we are not in a housing bubble. Yes, there has been a huge demand for homes, but banking regulations after the 2008 market crash are much more restrictive and have remained that way,” he says. “Today’s buyers are more qualified to purchase and sustain their investment, which means fewer foreclosures. Also, the supply of homes for sale could take years to return to normal levels. So even if there is a selloff, it won’t be a fire sale at discount prices. Home prices may come down some, but not drastically as they did in 2008.”

Hepp agrees. “Increase in housing demand since the onset of the pandemic has been driven by the ability to work from home and consequent flexibility in living location, relocation of households to less expensive areas, demographic trends and a large population group — millennials — approaching homebuying age,” she says.

Also, unlike the previous housing bubble, we’ve not observed a commensurate increase in new home construction and speculative purchasing of homes with subprime mortgage products. Nevertheless, some are concerned that the lessons learned from the 2008 market crash may not apply to the new crop of first-time homebuyers who weren’t in the market 14 years ago.

“Young first-time buyers may be tempted to overreach, seeing the pace of home appreciation over the past 18 months,” says McBride. “Fortunately, sane lending standards provide some guardrails to prevent buyers from using toxic mortgage products to purchase homes they could never afford.”

Who bought houses in 2021?

It’s helpful to take a closer look at who purchased properties last year, which may provide clues as to which generations may buy a home this summer and beyond. Here’s what we know, based on NAR data:

Homebuyer generation % of 2021 buyers Median age in group
Gen Z: 21 years and younger 2 21
Younger Gen Y/Millennials: 22 to 30 years 14 27
Older Gen Y/Millennials: 31 to 40 years 23 35
Gen X: 41 to 55 years 24 48
Younger Boomers: 56 to 65 years 18 61
Older Boomers: 66 to 74 years 14 69
Silent Generation: 75 to 95 years 5 78

Current supply and demand

Pandemic uncertainty created a unique real estate situation over the past couple of years. Buyer demand became unusually hot, with home searches taking longer, inspections being waived and bidding wars commonplace. Some homeowners want to stay put due to economic concerns, knowing they might struggle to find a new place. And some want to sell ASAP to cash in on the high prices while they still can.

Despite his prediction for a slower market this summer and declining interest from prospective purchasers, McBride expects buyer demand will continue to outpace available housing inventory. Increasing rental prices should contribute to this anticipated trend.

“Mortgage rates soared early this year because inflation quickly moved to four-decade highs and the Fed said they would tighten policy more aggressively to corral it,” he says. “Supply for homes was already low entering the pandemic following a decade of underbuilding of homes, and it has only gotten worse since. But this cycle is already beginning to change as demand is falling off sharply due to soaring prices and higher mortgage rates.”

Evangelou foresees more homes entering the market later this year, helping to ease the current housing shortage. “With higher mortgage rates on the horizon and a greater supply of homes, housing demand should slow down due to weak affordability,” she says.

Borrowers are more likely to pay off their mortgages

Back in 2008, the housing market crashed. This was primarily due to factors like predatory lending practices, irresponsible speculation, lax lending standards, defaults and foreclosures, and excess debt in asset markets.

The good news is that, in the years since, more consumers have become aware of the risks associated with mortgage debt and are less inclined to purchase a home they cannot afford. Additionally, we continue to enjoy a strong job market, low unemployment and rising wages that aid affordability.

Still, some experts are concerned that rising rates, continued high home prices and other factors could result in buyers getting in over their heads and having difficulty paying their mortgage bills. If that were to happen in large enough numbers, there’s the possibility of a housing bubble that will burst.

Warning signs of a market crash

While most pros don’t believe we are currently in a bubble, or that a housing market crash is coming, it’s helpful to pay attention to indicators of a market crash. These can include:

  • Overpriced homes that outpace affordability, inflation and economic fundamentals
  • Rising loan-to-income levels
  • Increased mortgage rates
  • Decreased economic growth
  • Rising mortgage balances
  • Climbing subprime mortgage loan numbers

“I believe we are not heading toward a housing market crash,” Hepp says. “The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

Bottom line

The outlook through summer 2022 is mixed, depending on which expert you talk to.

Some, like Brian Koss, executive vice president of Mortgage Network in Danvers, Massachusetts, anticipate less buyer demand and lower prices in tandem with slightly higher mortgage rates. “I expect the market to remain at the slower pace we’ve seen this spring,” he says. “The rise in rates coupled with the lack of inventory has forced many buyers to the sidelines. At the same time, numerous sellers will hold out for higher prices and won’t be under a lot of pressure to budge. But those who need to sell will drop their prices.”

Others foresee a more robust market where buyers lock in rates and claim homes before the costs to finance and purchase get any higher. “Even though higher mortgage rates have priced out plenty of potential buyers, many shoppers are willing and able to purchase a home and will perceive slowing of buyer competition as an opportunity to purchase,” says Hepp.

Written by
Erik J. Martin
Contributing writer
Erik J. Martin is a Chicago area-based freelance writer/editor whose articles have been featured in AARP The Magazine, Reader's Digest, The Costco Connection, The Motley Fool and other publications. He often writes on topics related to real estate, business, technology, health care, insurance and entertainment.
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