Houses are about to get a lot more expensive

• Price growth in the US housing market, and larger economy, will moderate in 2022.
• However, Fannie Mae forecasts housing will remain unaffordable.

Home prices are going to rise at a slower pace this year – but that doesn't mean housing is getting more affordable.

Price growth in the housing market, and larger economy, are expected to return to more modest levels this year as disturbances caused by the COVID-19 pandemic begin to ease, according to Fannie Mae. That's because, Fannie researchers say, regulators will shift their focus towards easing inflation, resulting in more expensive mortgages.

The average U.S. fixed rate for a 30-year mortgage rose to 3.56% this week, reaching the highest level since March 2020, according to Freddie Mac. As inflation puts pressure on the economy, rates are expected to continue rising in 2022.

"Even though inflation is expected to eventually ease, a higher-than-pre-COVID range is forecast for the foreseeable future," researchers wrote. "Therefore, we describe this upcoming year as returning to a 'new' normal." This new normal could mean bad news for cash strapped buyers hoping to purchase a home in 2022.

Home affordability has fallen to historic lows. It's keeping more Americans from buying, and it's only getting worse — in large part due to relatively stagnant wages during a time of surging home prices. For the past two years, rock-bottom interest rates on mortgages have encouraged home buying, but the party's over as regulators turn an eye toward curbing inflation by raising rates.

An even more exclusive housing market

In the fourth quarter of 2021, the average priced single family home in the majority of US counties was less affordable compared to historical numbers, according to property database ATTOM.

Looking into 2022, Fannie's analysts expect the Federal Reserve to raise interest rates three times beginning in March. That means it will become more expensive to get a mortgage, even though prices themselves won't be skyrocketing compared to previous pandemic-era years. A lack of homes for sale and rising prices means the market just got that much tighter.

The recent growth in home prices coupled with rising mortgage rates will lead to more affordability constraints, according to Fannie. This year, the organization expects home prices to increase 7.6 percent. Although it is a decline from 17.3 percent in 2021, it is still considerably higher than the average pace of 5.4 percent from 2012 to 2019.

As prices remain strong, Fannie's researchers forecast the sale of existing homes in 2022 to slow by 3.2 percent from 2021, which would still represent the second fastest annual pace since 2006.

"We expect the narrative around housing this year to shift from one of extremely limited inventories leading to hypercompetitive bidding wars to one in which increasingly more would-be homebuyers are priced out of the market," researchers wrote.

Americans simply aren't getting paid enough to keep up

"The latest pattern – home prices still manageable but getting less affordable – has resulted in major ownership costs on the typical home," according to ATTOM, which found that at the end of 2021, Americans spent more than a quarter of the average national wage of $65,546 on a home. Wages are a large factor in housing affordability and if significant gains are not made, more buyers will have a harder time affording housing.

To be able to afford a home, you have to make quite a bit of money or save for a very long time, Francesca Ortegren, Clever Real Estate's data scientist, told CNBC. After the pandemic caused housing prices to spike, the company's data shows it now costs 5.4 times more, on average, than a typical buyer's gross income. This means less Americans can afford to purchase in an already constrained housing market.

"We expect that rapid house price growth eclipsing gains in wages, combined with the waning effects of past stimulus checks and built-up savings, will make it increasingly difficult for many potential buyers," Fannie's analysts said.