Here’s how much house prices will rise in 2022: Goldman Sachs
- Home prices could rise another 16% in 2022 as the mismatch between supply and demand continues, Goldman Sachs said.
- Prices have already soared 20% this year as housing shortages have fueled bidding wars across the United States.
- This could affect rents, with housing inflation rising from 2.4% to 4.5%, economists added.
Goldman Sachs has mixed news for U.S. homebuyers who have struggled with a white-hot housing market all year.
The good news: prices won’t rise as much next year as they did in 2021. The bad news: they will still rise a lot.
US home prices will climb another 16% through 2022, Goldman economists led by Jan Hatzius said in a Monday note. Forecasts don’t give much to potential buyers heading into the new year. Prices have already jumped 20% in the past year as a severe shortage of homes has given way to frantic bidding wars. Builders have moderately accelerated the construction of new homes, but they are nowhere near the pace needed to keep up with demand.
The shortage will persist into next year, and it is uncertain whether the market will normalize then, the team said.
“Of all the shortages plaguing the US economy, the housing shortage could last the longest,” they said. “Although the supply of homes for sale has increased slightly since the spring, it remains well below pre-pandemic levels and the outlook offers no quick fix to the shortage.”
The mismatch between buyer demand and domestic supply is driving the bank’s expectation that prices will rise well into the 2020s.
On the supply side, builders cannot speed up construction even if they wanted to. Businesses are not only facing pandemic headwinds like supply shortages and delays, but also pre-crisis issues like lack of workers and land scarcity, economists said.
These obstacles will limit the construction of new homes to about 1.65 million units per year, a net increase of 1.4 million per year after the demolitions, they added. That’s just above the pace seen in August, but well below the annual rate of 2 million homes that the National Association of Realtors says is needed to make up the shortfall caused by years of underconstruction.
On the other side of the equation, demand shows no signs of letting up. Millennials are in their peak buying age and they are ready to give household formation a one-time boost. And while Americans’ attitude toward home buying is at its lowest since the 1980s, there are still plenty of “reluctant bulls” on the sidelines, the team said. These buyers are planning to buy homes in the near future, even though their feelings towards the market have deteriorated.
With a market plagued by reluctant bulls and struggling homebuilders, prices won’t drop for years, Goldman said.
Tenants aren’t safe either. It just won’t be as bad.
Much of the housing turmoil has already bled into the rental market. Prices have risen above their pre-pandemic highs in many cities, and in places where deals can still be struck, they are expected to fade within months.
The bank expects this price spike to continue through 2022. Goldman sees housing inflation rising to an annual rate of 4.5% by the end of next year, a sharp acceleration from the current rate of 2.4% and the fastest price growth in 20 years.
The forecasts are worrying, especially since inflation is already at decade highs. The bank’s housing inflation tracker – which combines a set of alternative measures of rents into a single forecast – has risen from 2.1% to 4.6% in just six months.
There are reasons to believe the actual increase will not be as large as this measure suggests, the economists said. For example, some of the metrics track private rent indices, and these focus more on rents that are passed on to new tenants rather than continuing leases. Landlords tend to raise rents more for new tenants than for existing tenants, and less than 5% of rentals turn over in any given month, Goldman said.
Separately, a wide range of cities and states have also enacted rent freezes during the pandemic, and governments will likely regulate how quickly rents can climb upon reopening.
Housin is calming down from his breakneck pace of earlier this year. But those hoping for a quick return to pre-crisis normalcy should be disappointed.