Should I buy a house in 2022? That is, as long as it doesn’t break your mortgage budget.

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  • Home prices are still rising and mortgage rates have risen 2 percentage points since January.
  • Inflation and the war in Ukraine exacerbated the housing supply crisis.
  • “Hidden gem” areas like Dallas or Tucson, Arizona may no longer be much more affordable.

Buying a house in 2022 just got harder. In just five months of the year, rising home prices and mortgage rates have already exceeded expectations.

The housing market last year was in a wild place with mortgage rates at historic lows. Homebuyers flocked to a market where supply was low, even if it meant paying more for the home, and the trend accelerated as people rushed to lock in low interest rates.

The picture is changing rapidly, in large part as mortgage rates soar to their highest levels since 2009. Add to this faster inflation, increased housing shortages due to the war in Ukraine, and higher demand prices, and you have significantly higher housing costs. A new home since the beginning of the year.

“We expected mortgage rates to rise at the start of the year,” said Danielle Hale, chief economist at Realtor.com. “But they have risen much faster than we initially expected. So financial conditions have really changed.”

Last year was marked by record prices and insane demand. Ordinary people have received another windfall in the form of billion-dollar investment companies seeking cash for cash offers alongside the desire for single-family homes.

By January, experts had predicted that prices would moderate and mortgage rates would rise to their pre-pandemic level of about 4% by the end of 2022. Even though they were more expensive, home purchases would likely continue at a healthy pace due to competition. experts said it’s lighter and easier for buyers to deal with.

That traditional thinking is still true even if the market is changing faster than expected, CoreLogic chief economist Frank Nothaft told Insider this week.

“If you can handle the higher price and your financial house is in order and you are ready to buy, then this is a good time to be in the market,” Nothaft said. “There will be far fewer home buyers and much less competition in the market.”

Demand and prices may fluctuate this year, sorry, buying a home will still be difficult. Amid the rise in home prices and mortgage rates, it was almost 50% more expensive to buy a home than it was in April 2019, Hale said.

Potential buyers will need to weigh several factors before making a purchase, including their financial situation, where they look, and how long they plan to own their home. (We have a test you can do to find out if your finances are strong enough to buy anywhere.)

Insider spoke to a few experts to find out what to expect this year when it comes to home prices, mortgage rates, and the best places to buy earlier this year.

Expect mortgage rates to stay high

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

Earlier last year, fixed 30-year mortgage rates fell below 3%, allowing home buyers to further expand their budgets and buy more expensive homes due to cheaper monthly payments. Len Kiefer, economist at Freddie Mac, said he believes these rates are the lowest in US history.

That window of opportunity has passed.

Residential mortgage collapse layoffs

Better.com laid off 900 employees last week.

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Today’s long-term rates are well above the 4% rate that many experts tell Insider they expect to see by December 2022. According to Joel Kan, this would be in line with pre-pandemic trends, which averaged 4% from 2010 to 2019. vice president of industry research and forecasting for the Mortgage Bankers Association.

“A percentage point makes a big difference for many people, but it’s not a high 4% mortgage rate in the overall plan,” Kan told Insider in January.

But as of Thursday, May 19, the 30-year average rate had increased from 3.11% on December 30, 2021 to 5.25%, and to about 2.75% last summer. According to Freddie Mac.

To give you an idea of ​​how mortgage rate changes can affect the amount you pay monthly for a home, here’s an example: Let’s say you buy a home for $425,000 and make a 5% down payment.

If you bought it at the end of December 2021 and have a 30-year mortgage with a 3.11% interest rate on a mortgage, you’ll pay about $1,726 per month, according to Insider’s mortgage calculator. However, if you take the same mortgage for the same house today and make a 5% down payment, the monthly payment will be $2,242 at a rate of 5.3%.

If you multiply that over 30 years, the additional cost would be $185,760.

Rising mortgage rates mean that housing costs will manage a larger portion of your salary. By the end of December, anyone earning more than $70,000 a year can buy that house without risking becoming poor or paying more than 30% of their annual income for housing. Now, a person needs to earn at least $20,000 more to buy the house at the higher interest rate.

This has priced in many people who could buy a home off the market earlier this year. That’s why people are turning to adjustable rate mortgages or ARMs to keep costs relatively low. Rates on 5/1 ARM, a mortgage that is fixed for 5 years and can be adjusted annually thereafter, are still around 4%, but fell below 2.5% in December, according to Freddie Mac data.

A plus of these rising rates means less competition for the limited supply of homes, which has caused price increases to slow or even fall in some cities across the country.

“The nice thing is that home prices tend to be inversely proportional to mortgage rates,” Ward Morrison, president of Motto Mortgage, told Insider in January. “So home prices will stabilize as mortgage rates rise.”

House prices will continue to rise, but not as much as in 2021

While experts predict that the appreciation in house prices will slow in 2022, demanded prices are still increasing rapidly. According to Realtor.com, the typical asking price of a home reached $425,000 in April, up 13.3% since December compared to a 10.3% increase in the same period last year.

Economists in January said moderation in home price growth would not be immediate, not for everyone and everywhere. Some experts predict that 2022 will end with a 3% increase in prices overall, while others predict it will be 5% or 6%, which is more in line with historical averages.

house for sale sign residential market

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“For Sale” signs in front of a home in Glenview, Illinois.

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“There are so many buyers in the market ready to pay, so I don’t think higher mortgage rates are going to scare everyone away,” Redfin chief economist Daryl Fairweather said in January. “But it won’t be as crazy as last year when the rush of people trying to get interest while interest rates are still very low subsides.”

For millennials and first-time home buyers, it can still be difficult to find a home as prices get faster and higher than they can reach. But home prices aren’t going to drop anytime soon, so it’s going to be harder for people to buy if they don’t do it now.

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

Of course, while the cost of owning a home is rising, Nothaft said interest rates will fall in the future, allowing mortgage holders to refinance at a lower rate. The Mortgage Bankers Association forecast this month that 30-year flat rates will average 4.8% next year and 4.4% in 2024.

Using an ARM is “a good option for those who want to keep costs down,” Nothaft said.

Still, this won’t work for everyone.

Nothaft said those with their eyes set on a currently inaccessible home type may have to wait until interest rates drop or move into a cheaper home if they don’t choose the ARM route.

Best places to buy in 2022

Tucson, Arizona

61eaf6fad2653000180429e1?width=600&format=jpeg&auto=webp Should I buy a house in 2022? That is, as long as it doesn't break your mortgage budget.

Tucson, Arizona.

Danny Lehman/Getty Images


Some places are easier to buy a house than others.

That’s why the large numbers of people who moved during the pandemic often targeted places where their money could go even further. Places like Austin, Texas, and Miami saw an influx of homebuyers last year, many of them from more expensive centers in New York and California. Towns in the southern US and near the Rocky Mountains have similarly experienced a displacement flood.

The result: House prices in these previously relatively affordable places have skyrocketed. Take Fairweather from Redfin, Austin, where they recorded an increase of about 30% in 2021. He added that places like Austin could see a regulation in 2022. But while prices may drop 10%, homes will still cost 20% more than in 2020.

“Most of it has to do with how big of a change the pandemic is and how much of it we expect to go away once the pandemic is over,” Fairweather said. “How much of this is permanent change?”

On the other hand, Fairweather added that house prices in certain cities, such as Richmond, Virginia, had been rising steadily for years even before the pandemic and will likely continue to rise gradually.

Both Austin and Richmond are growing, he said, so if buyers buy a home in both locations, its value will likely increase over the next five years.

A recent Realtor.com survey of the best places for millennials and millennials first-time homebuyers found that many are outside, but not within, major cities like Boise, Idaho, Salt Lake City, and Madison, Wisconsin.

In April, some places began to feel the impact of rising mortgage rates and declining demand: Toledo, Ohio, Buffalo, New York, and other cities saw prices decline year-over-year.

The National Association of Realtors also determined 10 areas where house prices seem undervalued, despite strong indications that homes could be worth more. These “hidden gems” include Dallas-Fort Worth and Tucson, Arizona, as well as Knoxville, Tennessee and Huntsville, Alabama.

The organization has predicted that house prices in these locations will increase significantly this year, making them a good bet for buyers.