At the end of last year, housing economists nearly all agreed that home price growth would slow this year. Now, some are taking back these predictions.
While expert predictions varied on how much the growth would slow, most believed it was impossible to continue on the price growth trajectory that occurred last year and based their predictions around this certainty.
Last summer, the year-over-year growth rate peaked at around 20 percent. The average growth rate is around 5 percent.
Many expected that as mortgage rates rose as an indirect result of the Federal Reserve’s policy adjustments, buyer demand would fall and low home supply would play catchup.
These factors then would bring more balance back to the market.
Fannie Mae and Freddie Mac even predicted price growths of 7.9 percent and 7 percent, respectively, which are still higher than the average but much more modest.
However, this balance has not happened. Housing inventory is still down 19.5 percent from January 2021, and 40.5 percent from pre-pandemic levels.
Also, rates have risen as high as 3.8 percent this month.
In January, there was another buyer rush to try and capture current rates before they rose higher. Experts still predict rates will reach anywhere from 4 percent to 4.5 percent by the end of the year.
In response to the changing factors, Zillow economists are among the experts who take back their previous predictions.
In December, Zillow predicted home values would reach 11 percent this year. Now, their new forecast predicts prices will hit 16.4 percent sometime between now and December.
While mortgage originations have begun to slow in response to higher rates, Zillow’s predictions run with the assumption that there’s still some tough months ahead for buyers as demand, rates, and inventory battle.
The lingering question mark for experts is on how the Fed’s planned interest rate rises and policy shifts will affect mortgage rates and the housing market in general.
Experts caution buyers to not take these predictions to heart, as many of the biggest fluctuations that occurred in the past few years were not predictable.
In fact, Zillow had predicted in spring 2020 that home prices would fall by spring 2021.
Instead, housing experts encourage buyers to focus on their personal finances and homeownership goals, whether that includes purchasing, refinancing, or home improvements.
Whether a home is affordable depends on a buyer’s financial health and the specific location as much as other external factors, experts say.