Economic Forecasts

The Housing Market Still Isn’t Showing the Full Effects of Rapidly Rising Mortgage Rates

Kiplinger’s latest forecast on housing starts and home sales.

Kiplinger's Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or for more information.

If you already subscribe to the print edition of the Letter, click here to add e-mail delivery and the digital edition at no extra cost.

Record-low existing inventory will support residential construction and new-home sales. Total housing starts rose 0.3% to 1.793 million annualized units in March. Single-family starts fell 1.7%, while multifamily starts rose 4.6%, with most of the gain coming from apartment buildings. Single-family starts remain strong, at a 1.2-million-unit pace. Building permits fell 1.9% from the previous month, but the recent strength in permits for both the single-family and multifamily sectors bodes well for starts later this year. The strength in housing starts at the beginning of the year likely reflects some easing in supply constraints that have affected the home-building sector since the beginning of the pandemic. Multifamily starts, fueled by low vacancies and rising rates, will rise 6.5% from last year. Single-family starts will increase 1.5% in 2022.

New-home sales remain strong, but will lose some momentum as we move further into 2022. New-home sales fell 8.6% in March, to a 763,000-unit pace. At the current sales pace, it would take 6.4 months to sell out the supply of new homes for sale. The inventory of new homes has been trending up for the past 12 months, and reached 407,000 in March. Much of the inventory gain, however, has been in homes that have not yet been started and homes that are under construction. Sales fell in all four regions of the United States, led by a substantial 10.2% drop in the South. The median price of a new home was $436,700 in March, which is 21.4% higher than it was a year ago.

Amid rising mortgage rates and tight inventory, and with home-buying sentiment faltering, existing-home sales are likely to slow down to 2% growth in 2022. The start of the Federal Reserve’s tightening cycle in March is already having a modest impact on existing-home sales, which fell 2.7% to a 5.77-million-unit pace in March. Sales are down 4.5% from a year ago. Single-family sales fell 2.7%, while condo and co-op sales declined 3%. The modest pullback in demand has led to slightly more homes for sale on the market. Inventories remain tight, but they did rise 11.8% in March. Despite elevated prices and lean inventories, demand for homes is still robust. Listed homes remained on the market for an average of 17 days in March 2022, down from 18 days in March 2021.

House prices are set for a quieter 2022, with price growth slowing down to around 5% by year-end. Strong price growth is universal for all types of homes – entry-level, move-up and luxury. Homeowners aren’t finding many suitable homes to move into, so they’re largely staying put, pushing the number of new listings on the market to record lows. At the current sales pace, the unsold inventory equates to just a two-month supply of homes. A normal level would be closer to five months. The S&P CoreLogic Case-Shiller National Home Price Index rose 19.8% in February from a year ago, up from 19.1% in the previous month. While home prices continued to advance at a very rapid pace at the start of the year, the environment is evolving rapidly and it is unlikely to support strong price growth for much longer.

The 30-year fixed mortgage rate will end the year at around 5.5%. The average rate on this type of loan has increased more than 200 basis points from a year ago. That is starting to have an impact on demand, with mortgage applications recently falling to a level not seen since the height of the COVID-19 pandemic two years ago.

Most Popular

Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is at an all-time high. What’s driving the surge and will gas prices go down anytime soon?
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Education is Key: 3 Financial Lessons for Retirees Nearing Retirement
retirement planning

Education is Key: 3 Financial Lessons for Retirees Nearing Retirement

When it comes to retirement planning, educating yourself can keep you from making big mistakes. Here are three key lessons that everyone preparing for…
May 24, 2022

Recommended

Kiplinger's Economic Outlooks
Economic Forecasts

Kiplinger's Economic Outlooks

Regularly updated insights on the economy’s next moves.
May 27, 2022
12 Cheapest Small Towns in America 2022
real estate

12 Cheapest Small Towns in America 2022

Affordable small towns might not be for everyone, but their charms put them among the best places to live for plenty of folks.
May 25, 2022
11 Best Things to Keep in a Safe Deposit Box
home

11 Best Things to Keep in a Safe Deposit Box

These valuables and documents, along with some items you hold dear, should be stored securely at your bank.
May 18, 2022
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
April 28, 2022