Virginia’s home prices are expected to continue to rise next year, but at a much slower pace than the last few years, according to the Virginia Realtors 2022 economic and housing market forecast.
“We’re going to see this extreme price growth moderate in 2022, so this double-digit price appreciation over the last year, that’s going to slow down,” said Lisa Sturtevant, chief economist of the Virginia Realtors. “It’s not a bubble bursting. It’s not a decline in prices, but the pace of growth will slow and will be more in line with incomes growing.”
The median and average home prices both increased by more than 10% in the first quarter of 2021 compared to the first quarter of 2020.
Sturtevant said the forecasted subdued price increases will be a result of several factors: rising mortgage rates, increasing inventory of homes for sale and for rent, and decreased demand.
Next year, Sturtevant and other economists anticipate employment will reach pre-pandemic levels, which will result in increased mortgage rates along with the recovering economy.
Sturtevant said she expects the 30-year mortgage rate to rise to to 4%.
“It will impact the marginal buyer who needs the 3% rate to get in,” she said.
However, Sturtevant said there may be a small surge this fall if mortgage rates rise as people clamor to take advantage of the low rates before they rise again.
More people are also willing to open their homes for sale again, as they had decided to hold off to keep people out of their homes during the pandemic, according to Sturtevant. New construction this year will also play a role in next year’s increased inventory.
Though new home construction next year will not match this year’s pace, the Realtors expect 37,000 new homes will have been built in 2021 — more than 10% more new builds than last year, according to the 2022 forecast.
Demand, like new construction, will also slow next year, as these previous factors come together and there are simply fewer people looking for homes, according to Sturtevant.
The decreased demand, higher rates and more inventory combined will tamp down home price increases in the commonwealth, according to Sturtevant.
This year, the Realtors expect home prices to reach 9.2% higher than last, and next year, the prices will continue to rise, but at less than half the pace — 4.1%.
In 2020, home sales in the Shenandoah Valley region had the second fastest growth in the state at 20% behind the Eastern region, which includes the Eastern Shore and the Northern Neck, according a statewide report by the Realtors. Home sales in the Eastern region grew 29.4% last year.
This year, the fastest price growth has been in the western part of the state, according to Sturtevant.
“The broader Shenandoah Valley region is where you’ve seen the fastest price appreciation over the last year, and I think current residents are probably stressed out about that,” she said. “If you’re a resident trying to get into home ownership, it’s a little hard with that price pressure.”