Trying to predict any market; stock, bond, mortgage, real estate or other type is a measured guess at best. Toss in a global pandemic, global supply chain issues along with global inflation and the challenge is exacerbated. But in this maelstrom comes a confident 2022 housing market forecast from Goldman Sachs; they predict home prices will appreciate 16% during 2022.
In 2019 the housing market found its legs and combined with a historically strong economy and low rates, the housing market caught fire. The pandemic slammed on the brakes, but by mid ’20 things inexplicably exploded. Prices skyrocketed, competition was ferocious and this fever has been running hot through most of ’21. The two main drivers; low mortgage rates and historically low inventory.
The expectation is that the pace of new construction will pick up. It’s been lagging since the crash of 2010 as builders worked thorough those years of turmoil. Normal levels were short lived, derailed by the pandemic and supply chain issues. Many expect these issues to be worked out for 2022 and builders to be key in boosting housing inventory. An increase in new home inventory will have positive ripple effects. Not only will it open options for first time buyers, move up buyers will have more to choose from. Another key are empty nesters; once the kids are out many of these owners look to downsize and their homes are recycled for the next family to grow. The healthy real estate market cycle of new home owner to family home owner to downsized home owner was disrupted in ’20-’21. It was insanely easy to sell but insanely difficult to buy, so many just stayed put.
There are however, things to watch. Inflation over ’21 spiked to rates not seen in decades, this is clearly an undesirable drag on buyers already having to deal with historic home price increases. If government spending and inflation continues at the same pace as the last several months, it will impact buyers. The first time buyers are particularly vulnerable as are those carrying debt like student and consumer loans.
Another variable are mortgage rates. The Federal Reserve (the Fed) began buying back 120 billion dollars of mortgage backed securities every month once the pandemic hit. This was done to help stabilize the economy and avoid collapse. While not directly influencing mortgage rates, this move helped maintain historically low rates which fueled the housing market. This is slowly being pared back and scheduled to end in 2022. The Mortgage Bankers Association expects the average rate on a 30-year mortgage to reach 3.5 percent by mid-2022 and 4 percent by late 2022. Still great rates, but above what we’ve seen for years.
2020 was expected to be a continuation of 2019; a continuing strengthening market and an overall “boring” year. As the March shut down hit, calamity was forecast and for a few months, that seemed accurate. Until it wasn’t. Home prices and the stock market are at record levels as is government spending with inflation the highest in decades. Little makes sense right now and many economists are getting whiplash. Buckle the chin straps because 2022 won’t be boring.
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