Home prices are a long way from peaking, according to Goldman Sachs. Simultaneously, new home builders remain confident about sales climate.
Goldman Sachs Bullish about Home Prices in 2022
A new housing market forecast from Goldman Sachs (GS) predicts that housing prices will rise another +16% by the end of 2022. This +16% forecast is on top of current home prices being up +20% year-over-year.
Led by Jan Hatzius, a team of GS economists wrote, “The supply-demand picture that has been the basis for our call for a multi-year boom in home prices remains intact,” according to Yahoo! News.
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Tight Housing Inventory Remains Front & Center to this GS Prediction
Over the past year, a confluence of factors has led to record-high home prices and sales. These factors include low interest rates, low supply, migration patterns fueled by the pandemic, and demographics (Millennials entering the home buying market). Additionally, with inflation rising faster than expected, investors are buying residential housing as hard assets.
All of this buying has put even more pressure on inventory shortages around the country.
Though there have been improvements concerning existing home supplies over the past few months, the homebuilding industry is well below building starts and completions that could help fill inventory voids around the country. However, the construction industry remains -201,000 jobs below the level of the jobs it had pre-pandemic, according to the US Bureau of Labor Statistics.
On top of this massive labor shortage, the new home building industry is simply unable to get the materials it needs to build new homes due to supply chain bottlenecks.
Goldman Sachs points to this massive inventory shortage as the basis for its bullish prediction around home prices increasing an additional +16% by the end of 2022.
New Home Builders Remain Bullish
According to a new report by the National Association of Home Builders (NAHB) and the Wells Fargo Housing Market Index (HMI), home builders remain bullish about current market conditions. Builders express confidence about the sale of new homes currently and about traffic of prospective new home buyers over the next six months.
The NAHB credits strong consumer demand for its bullishness. Such demand is attributed to low inventory and strong competition among buyers. For example, in Burlington Vermont, agents are seeing frustrated buyers turning to new builds just so they have a place to live despite escalating prices.
“People have nowhere to go, so they are just building, building, building, and people are buying them up,” said eXp agent Claire Kavenaugh in Burlington. “Building has become more expensive, but people are willing to pay the prices because it guarantees them a home.”
The Concern for Home Builders? Affordability
Despite their bullishness about market conditions, home builders are becoming worried about affordability issues for new homebuyers.
“Builders are getting increasingly concerned about affordability hurdles ahead for most buyers,” said NAHB chief economist Robert Dietz. “Building material price increases and bottlenecks persist and interest rates are expected to rise in coming months as the Fed begins to taper its purchase of US Treasuries and mortgage-backed debt. Policymakers must focus on fixing the broken supply chain. This will spur more construction and help ease upward pressure on home prices.”
Thanks to Goldman Sachs, National Association of Home Builders, US Department of Labor Statistics, Realtor.com and HousingWire.