Where are Home Prices Headed in 2022?
The online real estate marketplace, Zillow, released an important article concerning where real estate prices are heading in 2022. The article had a major impact in that Yahoo Finance, Fortune Magazine and others have written entire articles devoted the Zillow analysis.
Over the next 12 months, Zillow is forecasting an 11.7% increase in U.S. home values.
The firm expects home prices to grow over the next 12 months for the simple reason that demand is still outpacing supply. One of the reasons has nothing to do with Covid or the economy. According to Fortune Magazine’s article, “We’re in the middle of the five-year period during which the largest chunk of millennials … are hitting their thirties – the age when first-time homebuying really kicks into gear. The market just wasn’t ready for this influx. After the [ 2007-2008] housing crisis, builders played it safe during the 2010 decade. As a result, the nation is under-built by around 4 million homes.” The logical result: The market is now crowded with buyers competing for a limited number of homes for sale, driving prices up.
Another reason for the current high prices and predicted price increases during the coming year is the impact of Covid. The struggling economy, due to slowdowns and closings, has prompted the Federal Reserve to keep mortgage rates very low. Those who weathered the pandemic and have funds for a mortgage down payment, are tempted to enter the market due to those low rates, adding to the pool of buyers. Again, more buyers and limited supply will always lead to higher home prices.
The nation’s most elite investment bank, Goldman Sachs, is even more optimistic. The bank predicts home prices to skyrocket 16% by the end of 2022. Goldman lists the same reasons as Zillow for expected increases but adds one more: “Investors have also stepped up their buying activity as they see housing as a hot asset. Secondly the firm points out that builders “have been hamstrung by shortages of materials and labor.” This should keep supply limited.
Goldman’s bold forecast is clear: “The supply-demand picture has been the basis of our call for a multi-year boom in home prices to remain intact”, according to their Chief Economist and Head of Global Economics and Markets Research, Jan Hatzius. “Housing inventories remain historically tight, and surveys of home buying remain at healthy levels.”
Lawrence Yun, Chief Economist for the National Association of Realtors, notes some encouraging news for the housing market. He points to a recent uptick in pending home sales. According to Yun, there is some inventory growth in the market. This should serve to bring more potential buyers into the market. But he also points to the problematic fact that the home building industry is short 201,000 jobs compared to pre-pandemic levels.
For the reasons listed above, most analysts believe home prices will continue to rise through 2022.