Goldman Sachs forecasts home prices to jump 16% in 2022
The housing market is on fire, with home prices up 20% today compared to one year ago. But if you thought that the market couldn’t get any hotter, and that things might start to cool off soon, think again, as analysts believe there are yet more home price gains in store for 2022.
Goldman Sachs last week said it’s expecting home prices to grow by another 16% by the end of 2022, even as some signs have emerged that Boston Beacon Hill apartment renter buyers may soon have it easier.
Goldman Sachs points out in its forecast that the rapid increases in home prices over the last year are due to several contributing factors, including low interest rates that make mortgages cheaper than ever. Added to that are coronavirus pandemic-driven migration patterns that have seen many remote workers move to more affordable areas, as well as more millennials apartment renters trying to become homeowners. Investors have also stepped up their buying activity as they see housing as a hot asset. Meanwhile, builders’ construction activity has been hamstrung by shortages of materials and labor.
It all adds up to a perfect storm for home sellers, and it’s unlikely to abate any time soon, Goldman Sachs’ economists believe.
“The supply-demand picture that has been the basis for our call for a multi-year boom in home prices remains intact,” said Goldman Sachs Chief Economist and Head of Global Economics and Markets Research, Jan Hatzius. “Housing inventories remain historically tight, and surveys of home buying intentions remain at healthy levels.”
A recent uptick in pending home sales had led to some optimism, with National Association of Realtors Chief Economist Lawrence Yun saying earlier this month noting slight inventory growth and moderating prices that were bringing more Boston condo buyers back into the market. However, he warned that affordability problems are likely to persist. And indeed, available housing inventory is still far below normal levels. Moreover, the home building industry remains unable to fill the void as its own problems persist. Data from the U.S. Bureau of Labor Statistics shows that construction employment is 201,000 jobs below what it was pre-pandemic, for example.
One possible solution to the low inventory, put forward by Goldman Sachs’ economists, is to relax city zoning laws.
“Economic research shows that relaxing the zoning rules and other regulatory constraints that have impeded homebuilding for decades would boost supply and lower prices and rents,” Hatzius wrote. “But in practice this has been difficult politically.”
Some progress has been made, with states like Oregon and Minneapolis both successfully removing single-family zoning laws in 2019 following a push by former U.S. Housing and Urban Development Secretary Ben Carson, who served under President Trump. More recently, California has followed suit, but analysts say it’s unlikely that these changes will become more widespread across the rest of the U.S.
With no possibility of relief on the factors driving home prices, most analysts believe the market will continue to accelerate. Fannie Mae, in its October economic forecast, has predicted more moderate home price gains of 7.4% in 2022, up from its earlier prediction of 5.1%.
Boston Condos for Sale and the Bottom Line
At the same time, Fannie Mae believes the continued price pressure will result in a decline in total home sales next year, down from 6.77 million this year to 6.54 million in 2022.
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There are two things that can tie up traffic in Boston: rain and that we the forecast of rain. Sounds funny but it is true and taps into what we called a self-fulfilling prophecy. This same dynamic can also apply to the Boston real estate market.
As we proceed into the 2020 many real estate articles (including here) have been written about the demise of the Boston downtown condo market. Since then, any perceived diminishment of the Boston condo market conjures up people of withdrawing enthusiasm of purchasing a Boston Beacon Hill condominium or Midtown condo.
It is important for potential Boston real estate buyers to hear this and understand that since the beginning of 2020, that according to Google analytics more individuals are searching for the term Boston condos now than they were one month ago. What does this mean? With historic low interest rates, a strong local economy and a shortage of Boston real estate inventory, the outlook for 2020 at the time of this published post, indicates that the 2020 Boston condo market looks strong and healthy for the foreseeable future.