- Home prices could surge another 16% in 2022 as the supply-demand mismatch continues, Goldman Sachs said.
- Prices have already shot up 20% this year as the housing shortage fueled bidding wars across the US.
- This could bleed into rentals, with shelter inflation soaring to 4.5% from 2.4%, the economists added.
Goldman Sachs has some mixed news for US homebuyers who have struggled with a white-hot housing market all year.
The good news: Prices won’t surge as much next year as they have in 2021. The bad news: They’re still going to go up a lot.
Prices for US homes will climb another 16% through 2022, Goldman economists led by Jan Hatzius said in a Monday note. The forecast gives prospective buyers little to cheer as the new year looms. Prices have already surged 20% through the past year, as a dire home shortage has given way to frenzied bidding wars. Builders have moderately accelerated construction of new houses, but they’re far from hitting the pace needed to match demand.
The shortage will linger into next year, and it’s uncertain whether the market will normalize then, the team said.
“Of all the shortages afflicting the US economy, the housing shortage might last the longest,” they said. “While the supply of homes for sale has increased modestly since the spring, it remains well below pre-pandemic levels and the outlook offers no quick fixes for the shortage.”
The mismatch between buyer demand and nationwide supply is the basis for the bank’s expectation that prices will boom well into the 2020s.
On the supply side, builders can’t ramp up construction even if they wanted to. Firms don’t just face pandemic headwinds like supply shortages and delays, but pre-crisis problems like a lack of workers and land scarcity as well, the economists said.
Those obstacles will limit new home construction to roughly 1.65 million units per year, or a net increase of 1.4 million per year after demolitions, they added. That’s only just above the pace seen in August, but well below the annual rate of 2 million homes the National Association of Realtors says is needed to fill the deficit caused by years of underbuilding.
On the other side of the equation, demand shows no signs of letting up. Millennials are in their peak buying age and they’re set to power a once-in-a-lifetime boost to household formation. And while Americans’ attitudes toward buying a home are at the lowest point since the 1980s, there are still plenty of “reluctant bulls” on the sidelines, the team said. These buyers plan to buy homes in the near future, even through their sentiments toward the market have soured.
With the market rife with reluctant bulls and struggling homebuilders, prices won’t cool off for years, Goldman said.
Renters 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 surged above their pre-pandemic highs in many cities, and in places where deals can still be had, they’re expected to fade in a matter of months.
The bank expects that price surge to continue through 2022. Goldman sees shelter inflation rising to a year-over-year rate of 4.5% by the end of next year, a sharp acceleration from the current 2.4% pace and the fastest price growth in 20 years.
The forecast is concerning, especially since inflation already sits at decade-highs. The bank’s shelter inflation tracker – which lumps a collection of alternative rent measures into a single forecast – has leaped from 2.1% to 4.6% in just six months.
There’s reason to believe the actual increase won’t be as steep as that measure suggests, the economists said. For example, some of the measures track private rent indexes, and those focus more on rents that turn over to new tenants instead of continuing leases. Landlords tend to raise rents more for new tenants than existing ones, and less than 5% of rentals turn over in a given month, Goldman said.
Separately, a wide range of cities and states also enacted rent freezes during the pandemic, and governments will likely regulate how fast rents can climb during reopening.
Housin is in the process of cooling off from its wild pace earlier this year. But those hoping for a quick return to the pre-crisis normal are set to be disappointed.