Will Increasing Interest Rates Finally Slow Down the Housing Market in 2022? Veros Predicts Not Likely

SANTA ANA, Calif., April 7, 2022 —Today Veros® Real Estate Solutions, an industry leader in enterprise risk management and collateral valuation services, released its Q1 2022 VeroFORECAST^SM that anticipates home prices will appreciate on average 7.1% for the next twelve months. VeroFORECAST evaluates home prices in over 330 of the nation’s largest housing markets. Veros is committed to the data science of predicting home value based on rigorous analysis of the fundamentals and interrelationships of numerous economic, housing, and geographic variables pertaining to home value.

Fundamentals remain to keep prices marching higher in most parts of the country. Historically low mortgage interest rates, insufficient new housing starts, very low inventory of homes for sale, the prevalence of all-cash buyers, and rapidly declining unemployment rates will continue to keep upward pressure on house prices. Though recent Fed actions have begun to raise interest rates and have started to paint a picture of rising mortgage rates throughout 2022, it is expected that these increases will be very modest and leave the historical low-rate environment generally intact. 

Though 30-year mortgage interest rates have gone from under 3.0% earlier this year to over 4.5% today, Veros doesn’t expect there to be much of an impact to the upward spiral of housing prices. Rates are still historically low, and with an average nationwide house price increase of $52,000 in 2021, many homeowners are sitting on a large amount of equity. When these homeowners are competing with others for purchase of a home where supply is very low, prices will be pushed upwards. In fact, recent interest rate increases will cause mortgage payments to increase by $200 per month for the median priced home. Buyers who have $52,000 more equity in their existing home are not likely yet to alter their behavior significantly for this monthly increase. To put this in perspective, this is the first time that typical house prices increased nationwide annually by more than the median full-time wage which was $50,000 last year. 

Eric Fox, Chief Economist at Veros commented that, “The situation the housing market is in today with prices that will not decrease or even slow down would be analogous to the situation of someone trying to lose weight but can’t seem to have success. If a nutritionist told them they had to start eating healthy meals, stop eating dessert, stop drinking alcohol, and start going to the gym 4 times per week to achieve their weight loss goals, and they questioned why they were not losing weight when the single recommendation they had only partially implemented was reducing their dessert from 4 scoops of ice cream per day to 3. That is the situation that today’s housing market is experiencing. We have a long way to go before fundamentals change in a significant way to cause a moderation in prices.”

The 10 strongest performing markets in the country forecast over the next 12 months continue to be exclusively in the Western United States or Florida, indicating demand being driven by migration South and West. Phoenix rocketed to the top spot with an estimated 17.2% forecast appreciation over the next 12 months. Flagstaff was another Arizona city making the Top 10. Utah remained strong with the cities of Provo and Salt Lake City making the list with appreciation above 14% expected. The Florida cities of Tampa and Sarasota are #8 and #9 with appreciation greater than 13% expected. And four states had a single city make the list including San Diego, Coeur d’Alene, Colorado Springs, and Olympia.