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Housing Market 2022: Hot or Not?

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Marcus is excited to share insights on the current housing market from our colleagues at Goldman Sachs Global Investment Research, along with an industry insider’s perspective from Douglas Yearley, chairman and CEO of national homebuilder Toll Brothers.

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It’s no secret that home prices have risen sky-high since the summer of 2020, creating the hottest housing market in decades. If you’ve been thinking about buying a home but haven’t pulled the trigger, you may be wondering if you should move now or wait for homes to become more affordable.

But what does affordable mean these days, anyway? To get a sense, you’d have to look at house prices and current mortgage rates – two factors that determine your monthly mortgage payment. Our colleagues in Goldman Sachs Research say that hefty increases in home prices plus rising mortgage rates are now making houses the least affordable they’ve been since 2008. The question is – will this trend continue?

Housing affordability outlook by the numbers

Our Research colleagues have looked carefully at the future of HPA (housing price appreciation) and tell us they expect prices to rise 9.3% in 2022. That number is down from the startling 18.8% of 2021 but still pretty high. However, they expect price increases to slow down dramatically to 3.4% in 2023.  

Meanwhile, mortgage rates are already heading up from the January 2021 record low of 2.65%.  According to the latest Research predictions, they’ll reach:

  • 4.2% by year-end 2022 
  • 4.4% by year-end 2023 

 If that seems high, let’s put it in perspective. According to Freddie Mac, the long-term average for mortgage rates is about 8%, so just over 4% is still a good rate.

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What’s pushing house prices up?

In a recent podcast for Exchanges at Goldman Sachs, Toll Brothers’ CEO Douglas Yearley offered his ideas on what’s been propelling home prices skyward. Basically, he outlined a case of demand outstripping supply, driven by a perfect storm of conditions . Demand grew as:

  1. Millennials reached their mid-thirties and felt ready to buy their first homes
  2. Low interest rates made buying as affordable as renting 
  3. Baby boomers with higher home equity and wealth from a booming stock market created a second home market
  4. Remote workers and others left expensive states, migrating to places where they could better afford to buy 

What about supply? As the pandemic began, the supply of existing homes for sale became tight; homeowners weren’t comfortable having buyers tour their homes. That drove up prices for existing homes and created more demand for new homes. But new homes were already in short supply – in the past 10 years, fewer homes were built than in the four prior decades.  

Once lockdown conditions lifted, home builders scrambled to meet the demand. But persistent supply chain problems drove costs up for lumber and other building materials, making new homes more expensive to build.  

Increased demand, low supply, high raw materials costs… Some of these price pressures may lessen over time, but not overnight. 

What’s pushing mortgage rates up?

We’ve talked before about how inflation has been on the rise and how one of the tasks of the Federal Reserve is to keep it in check. To do this, the Fed raises their target Fed funds rate

Now, the Fed rate is not the mortgage rate, as Yearley points out, but both tend to move in the same direction. When the Fed rate moves up, mortgage rates generally rise, too. In fact, as soon as the Fed started talking about rate hikes in 2022, mortgage rates started to rise in anticipation. 

TL;DR: HPA and mortgage rates are expected to level off…slowly

When mortgage rates rise, fewer buyers can afford the higher monthly payments, which lessens demand and cools down prices. Also, while the housing supply is likely to remain tight throughout this year, builders are steadily increasing the supply of new homes and this should also eventually lead to more moderate pricing.   

The bottom line? Our Research colleagues are forecasting that while homes won’t be getting cheaper in 2023, prices probably won’t be rising so dramatically.  

So whether you buy a home now or in the next few years will depend on your own circumstances. Have you saved up enough for a down payment? Are you thinking about moving to a more affordable area? Do you already own a home with equity in it? There are many factors to consider, but hopefully these insights into the future housing market will help you plan well.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.