Last week, the New York City-based multinational investment bank and financial services company, Goldman Sachs, announced its forecast for U.S. home prices through 2022. If their prediction proves accurate, then homeowners will continue to be handsomely rewarded with yet more strong home price appreciation, while those on the sidelines, still awaiting their chance to join the homeowner ranks, will face even tougher odds of realizing their dreams.
Between now and the end of next year, Goldman Sachs expects U.S. home prices will rise by 16 percent. That strong growth would come on the heels of exceptional appreciation in home prices experienced over the past 12 months. Moreover, Goldman Sachs expects U.S. home prices will continue to rise thereafter.
In their report, Goldman Sachs researchers explained that “Of all the shortages afflicting the US economy, the housing shortage might last the longest. Earlier this year, we argued that constrained supply and sustainably robust demand would keep the US housing market very tight, pushing up home prices and rents sharply. The boom since then has surpassed even our lofty expectations, with home prices now up 20% over the last year.”
The fundamental driver of strong home price appreciation is a supply-demand imbalance that was long in the making. In the aftermath of the 2008 housing crisis, homebuilders dramatically scaled back the pace of new construction, constraining supply for years to come. Annual new-home starts fell by roughly three quarters, from 2 million a year to about half a million, and it took until 2014 for starts to once again hit the million-home mark.
Demographic trends are driving demand to new heights, exacerbating the supply-demand imbalance. Specifically, millennials – those born between the early-1980s and the mid-1990s (the oldest of which reached adulthood around the turn of the millennium) – are now forming new households and looking to become first-time homebuyers.
Today’s low mortgage rates further fuel strong demand. It’s estimated that the U.S. housing stock is about 4 million homes short of ideal. On a positive note, the number of homes on the market is up 30 percent compared to last spring, which marked a 40-year low. But until supply and demand are better aligned, expect continued strong home price appreciation, according to Goldman Sachs.
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Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Smart Herald journalist was involved in the writing and production of this article.