Home Prices Continue To Rise, Real Estate Market Won’t Return To Pre-Pandemic Levels Until 2024, Experts Say

The current real estate market shows no signs of slowing down. Experts predict that the real estate market won’t return to pre-pandemic levels for another two years.

The S&P CoreLogic Case-Shiller national home price index showed unexpected growth of 19.2% between January 2021 and January 2022. The surprising surge was higher than December’s increase of 18.6%. Insufficient inventories and buyers racing to purchase homes before the Federal Reserve increases mortgage rates are believed to be the factors that continue to drive the already intense real estate market.

Fortune warns about the Fed causing mortgage rates to spike:

The Federal Reserve is getting serious about reining in runaway inflation. As a result, financial markets are pushing up mortgage rates. Back in January 2021, the average 30-year fixed mortgage rate was at an all-time low of 2.65%. That steadily climbed to 3.11% by December 2021. But over the past three months, the rate has skyrocketed. As of Friday, the average 30-year fixed mortgage rate stands at 4.16%. That’s a bigger deal than it might appear. A homebuyer who took out a $400,000 mortgage at a 2.65% rate would’ve gotten a $1,612 monthly payment. At a 4.16% rate, that payment soars to $1,947 per month. Over the course of 30 years, that’s an additional $120,559.

The top cities with the biggest price gains in January include Phoenix (32.6% year-over-year price increase), Tampa (30.8% increase), and Miami (28.1% increase). The U.S. cities With the lowest price gains include Washington (+11.2%), Minneapolis (+11.8%), and Chicago (+12.5%).

“The macroeconomic environment is evolving rapidly. Declining COVID cases and a resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response,” S&P DJI Managing Director Craig Lazzara said in a statement. “We may soon begin to see the impact of increasing mortgage rates on home prices.”

“Looking forward, the home buying environment will likely remain very competitive, with home price growth also remaining concerningly high as inventories show little-to-no sign of respite and buyers attempt to lock in a lower rate in anticipation of further increases,” said CoreLogic deputy chief economist Selma Hepp.

Zillow estimates that the insane housing market will continue to surge and buyers shouldn’t expect home prices to cool off for a while. Annual home value growth is expected to continue to rise – and could peak in May at 22% year-over-year rate of growth. The real estate market will gradually slow through 2023.

Zillow expects 6.4 million existing homes to be sold in 2022, up 4.8% from the extremely strong sales figures of 2021. The experts are forecasting the average expected home value to grow by 26.8% by the end of 2026.

The real estate market is expected to return to the 2019 pre-pandemic levels of inventory and the share of purchases made by first-time homebuyers, according to a panel of housing market experts polled in the latest Zillow Home Price Expectations Survey.

“The dwindling supply of homes for sale has been a proximate cause of the recent explosion in U.S. home values, which have risen by 32% in the past two years,” Zillow reported. “Total inventory has fallen from a monthly average of 1.6 million units in 2018 and 2019 to just over 1 million in 2021, and monthly figures in 2022 are lower still.”

The real estate experts anticipate first-time buyers to make a big splash in the real estate market in 2024 – citing the home purchasing power of millennials.

“Annual home value growth is likely to continue accelerating through the spring,” the Zillow researchers wrote. “The robust long-term outlook is driven by our expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes.”

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