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2022 third-quarter housing trends: Rates may stabilize, but prices remain high

Erik J. Martin

Aug. 1, 2022

The third quarter of the year has brought a few surprises to the housing market so far, including a slight dip in mortgage rates and signs of falling home sales.

But the near-term future looks relatively predictable to many experts, who foresee slightly lower or stabilized mortgage rates, relatively high home prices and lingering supply issues despite an uptick in inventory. Industry insiders are also mindful of a possible recession, which could alter prospects for the rest of 2022.

Housing market slowing down

Traditionally, the summer months that comprise most of Q3 are characterized by slower home buying activity than Q2, when the spring brings out more prospective buyers. That logic went out the window during 2020, when the pandemic upended seasonal trends. But it appears we can anticipate a third-quarter return to seasonal form in 2022, according to Selma Hepp, interim lead of the Office of the Chief Economist for CoreLogic.

“With the cumulative impact of higher mortgage rates, increased home prices and fears of recession, housing-market activity has already taken a significant dip,” Hepp says. “Slower demand is likely to continue throughout the third quarter, which will be characterized by year-over-year declines in home sales as well as slowing of home price growth on a year-over-year basis. We will likely see more price reductions, too, partly due to seasonality, but also as sellers contend with the reality of slower buyer demand.”

Existing-home sales have declined for five straight months, according to the most recent data from the National Association of Realtors (NAR) — but the market traditionally picks back up again during back-to-school season. “While summer months are generally slower due to vacations and kids being out of school, housing-market activity tends to pick up in [the fall],” says Hepp. Whether Q4 will align with traditional seasonality remains to be seen.

Q3 home prices and inventory

Skyrocketing price tags for homes show signs of slowing down as well — but not nearly as much as buyers would like. Prices remain stubbornly high.

“Affordability is the key concern right now in the housing market,” says Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “Both home prices and mortgage rates have risen, shutting the door on many potential first-time buyers, who are having a difficult time. While buyer demand remains strong, home prices will continue to climb, although it is expected that prices will moderate in growth.”

Consequently, this traditionally slow quarter for housing will be slower than usual, predicts Ralph DiBugnara, president of Home Qualified and vice president at home lender Cardinal Financial. “I expect to see the slowest third-quarter sales since about 2018,” he says. “Buyers are taking a wait-and-see attitude on interest rates and home prices.”

Mark Hamrick, senior economic analyst and Washington bureau chief for Bankrate, says there’s a silver lining to all this: rising inventory. “The supply of homes for sale may become a bit more favorable for prospective buyers, and with that there will be less upward pressure on home prices and perhaps further actual declines in pricing trends,” he says. “After sellers had held a distinct advantage in the housing market, the scales have begun to tip more in buyers’ favor. This might be viewed as a journey toward a more normal market.”

Nevertheless, he cautions, the composition of increased housing stock is unlikely to satisfy the desire of first-time buyers “to find great bargains or entry-level housing of the type they truly want and can truly afford.”

Will mortgage rates finally normalize?

While they’re certainly not likely to dip back down to the record lows of early this year, mortgage rates do seem to be stabilizing. Greg McBride, CFA, Bankrate’s chief financial analyst, foresees slightly lower rates by the quarter’s conclusion.

“Aggressive Fed action and growing fears of recession will bring mortgage rates lower, with the average 30-year fixed falling to 5.25 percent and the average 15-year fixed to 4.35 percent by the end of September,” he says. “Any evidence of inflation receding will help with lower mortgage rates, too.”

CoreLogic’s Hepp foresees rates for the benchmark 30-year fixed mortgage loan averaging around 5.5 percent through the third quarter. But if the Fed raises rates by another 75 basis points at their September meeting, that could change, she says: “That may cause another surge in mortgage rates prior to the meeting, akin to what happened in June. Absent any surprises, and if inflation expectations along with weaker demand lead to disinflationary pressures, mortgage rates are likely to remain at 5.5 percent, or even decline to about 5.3 percent.”

What it means for homebuyers and sellers

“More inventory is coming into the market, but this remains a seller’s market,” says Lautz. “The U.S. would need even more inventory for equilibrium to take place.”

However, hopeful buyers shouldn’t necessarily sit on the sidelines this quarter.

“Buyers who have lost out on countless contracts over the last two years may want to approach the market again,” she says. “They will see less competition, and are unlikely to see the bidding wars of the last two years.”

“It’s important for sellers to be realistic about price expectations,” adds Hepp. “Being patient is key — there are still many interested buyers out there.”

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