Prices, Mortgage Rates, and Best Places to Buy

• Buyers can expect home prices to keep climbing and mortgage rates to rise in 2022, experts say.
• Get ready to face stiff competition for houses, though you may have a better shot than last year.
• “Hidden-gem” areas like Dallas or Tucson, Arizona, might not be affordable much longer.

With home prices continuing to rise, mortgage rates increasing, and available homes for sale still historically paltry, one question lingers: Will the housing market this year be as wild as it was in 2021? 

It depends.

After the US housing market shattered records last year — prices haven’t gone up this fast in 45 years — most experts anticipate that in 2022, home prices will climb even further. But there’s hope: They likely won’t skyrocket at the breakneck pace recorded in 2021, when the national median home price jumped to $362,800, the highest on record, according to the National Association of Realtors.

Last year, buyers had to bid against billion-dollar investment companies and all-cash offers. While it may get a little bit easier this year, make no mistake, purchasing a house will still be extremely difficult. Prospective buyers will need to weigh a variety of factors before making a purchase, such as their financial situation, where they’re looking, and how long they plan to own their home. (We even have a quiz you can take to find out if your finances are strong enough to buy where you want.)

Insider spoke with several experts to learn what they were expecting this year when it came to home prices, mortgage rates, and the best places to buy.

Home prices will continue to rise but not as much as in 2021

While prices are projected to keep growing this year, they’re not expected to rise as fast or as much as they did in 2021. 

Competition for homes was ruthless last year, with everyday people racing to capitalize on historically low mortgage rates, others shopping for vacation abodes, and investors looking to cash in on the single-family craze. That, along with dwindling inventory, propelled nationwide home prices up 17.3% from 2020 to 2021.

Home-price growth will slow in 2022, economists told Insider, but not right away, not for everyone, and not everywhere. 

Home prices in the first quarter of the year will likely continue to increase year over year at a strong pace, four experts told Insider, but rising mortgage rates will eventually dampen demand and home-price growth will slow. Some experts predict that 2022 will end with a 3% increase in prices overall, while others estimate it will be 5 or 6%, which are more in line with historical averages. 

“There are so many buyers who are in the market and willing to pay, so I don’t think higher mortgage rates will scare everyone away,” Daryl Fairweather, Redfin’s chief economist, said. “But it won’t be as frenzied as it was last year once the rush of people trying to get interest rates while they’re still really low subsides.”

It still may be hard for millennials and first-time homebuyers to shop for a home as prices rise faster than they can afford to buy. But house prices are not set to fall anytime soon, so it will get harder for people to buy if they don’t do it now. 

“If you’re looking backwards, it’s the worst time to buy,” David Dworkin, the president and CEO of the National Housing Conference, said. “But if you’re looking forward from the reality of today to the next two or three years, it may be the best time to buy.” 

Fixed-mortgage rates of 3.5% are still lower than the pre-pandemic 10-year average of 4.1%, Frank Nothaft, CoreLogic’s chief economist, said, but you should aim to buy only if you are prepared. 

You’ll need to ensure that you have a good credit score, enough money for a down payment, and extra savings for last-minute expenses, he said. 

Because demand will likely continue to outpace supply, inventory may still be slim, experts say. Over the past several months, more than half of all new listings were sold in less than 30 days, Nothaft said. Many sold in days or over a couple of weeks, he added.

“If your financial house is in order, and you’ve done your homework, then this is a perfectly fine time to be in the market looking at buying a home,” he said.

Expect mortgage rates to keep climbing

The elephant in the room is, of course, mortgage rates. 

Early last year, 30-year fixed mortgage rates dipped below 3%, which allowed homebuyers to stretch their budgets further and purchase more expensive homes thanks to cheaper monthly payments. Len Kiefer, an economist at Freddie Mac, said he believed those rates were the lowest in US history. 

That window of opportunity has passed, and experts now anticipate that rates will continue to rise through 2022 and beyond. 

Today, 30-year rates hover around 3.5%. The Mortgage Bankers Association forecast that rates would climb to 4% by the end of 2022. Ward Morrison, the president of Motto Mortgage, also said he expected to see rates near 4% at some point during the year. 

“The nice thing is home prices tend to be inversely related to mortgage rates,” Morrison told Insider. “So as mortgage rates go up, home prices are going to stabilize.”

Those predicted rate increases are significant, but they’re still in line with pre-pandemic trends, according to Joel Kan, the associate vice president of industry surveys and forecasts for the Mortgage Bankers Association. From 2010 to 2019, rates averaged 4%, Kan said. 

“One percentage point makes a big difference for a lot of people, but 4% in the grand scheme of things is not a high mortgage rate,” Kan told Insider. 

To give you a sense of how mortgage-rate changes can affect what you pay per month for a home, here’s an example: Let’s say you buy a house for $400,000 and put 12% down, which is typical nowadays, according to the National Association of Realtors. 

If you get a 3% interest rate on a 30-year mortgage, you’ll be paying roughly $1,484 per month, according to Insider’s mortgage calculator. 

If you get a 4% interest rate, that monthly payment jumps to $1,681 — a difference of nearly $200. Multiply that over the lifetime of the loan, and you’re looking at a disparity in the tens of thousands of dollars. 

The best places to buy in 2022

It’s easier to buy a home in some places than others.

That’s why the scores of people who moved during the pandemic often targeted places where their money could go further. Places like Austin, Texas, and Miami had an influx of homebuyers last year, many from pricier hubs in New York and California. Towns across the Southern US and near the Rocky Mountains similarly experienced a flood of relocators.

The result: Home prices in these places, which had previously been relatively affordable, skyrocketed. Take Austin, Redfin’s Fairweather said, where they jumped about 30% in 2021. Places like Austin may see an adjustment in 2022, she added. But while prices could drop 10%, homes will still cost 20% more than they did in 2020.

“A lot of it has to do with how big of a change the pandemic was and how much of that we expect to go away when the pandemic goes away,” Fairweather said. “How much of it is a permanent change?”

On the other hand, home prices in certain cities like Richmond, Virginia, have been growing consistently for years — even before the pandemic — and will likely continue to inch up gradually, Fairweather added. 

Both Austin and Richmond are growing, she said, so if buyers purchase a home in either spot, its value will likely increase over the next five years.

A recent Realtor.com study of the best places for millennial and Gen Z first-time homebuyers found that many were outside major cities like Boise, Idaho, Salt Lake City, and Madison, Wisconsin — but not in them.

The National Association of Realtors has also identified 10 areas where home prices appear to be undervalued, despite strong indicators that the homes could be worth more. Among these “hidden gems” are Dallas-Fort Worth and Tucson, Arizona, as well as Knoxville, Tennessee, and Huntsville, Alabama.

The organization predicted home prices in these locations would jump significantly this year, making them good bets for buyers.