Annual Report Forecasts Home Prices

There are several challenges facing the housing industry today, including rising interest rates, home prices rising by a double-digit percentage, and an imbalance between supply and demand for multifamily housing units.

In its report for 2021, Harvard's Joint Center for Housing Studies (JCHS) claims that the housing market is at a point of inflection, following a record-breaking year in 2021. There is a need to reduce housing costs for low-income households and households of color; according to the JCHS report "The State of the Nation's Housing 2022," it is unlikely to relent on reducing housing costs for lower-income households and households of color.

Todd Tomalak, principal of building products at Zonda, says there are some issues facing housing: household formation is strong, but property prices fluctuate with unprecedented consequences. First-time homebuyers are being priced out due to rising costs of building products and rising mortgage rates. Due to increasing rents, those without homes gain significant home equity gains, and renters facing surging rents experience a greater wealth gap."

Although costs and interest rates are high, the JCHS says that low unemployment, favorable demographic shifts, and strong wage growth positively impact housing demand in the near term. JCHS reports that a record number of homes will be completed in the next few months, indicating that supply chain delays are decreasing. While housing demand will depend on fiscal policymakers' ability to cool inflation without causing a recession, the report notes that these factors are directly linked to the ability to cool inflation.

As well as high building materials, land prices, and a labor shortage, affordable homes pose a long-standing challenge, according to Chris Herbert, JCHS managing director. Many proposals have been made to improve the housing safety net and provide more fantastic support to first-generation homeowners following the pandemic. It's important to continue discussing policy alternatives to make housing affordable for everyone, even though these measures haven't been implemented."

Soaring Housing Costs

While the housing market is forecast to grow in the near term, housing costs are continuing to rise, according to the JCHS. The increase in home prices in March was 20.6%, the most significant rise in the past three decades. A record-high appreciation rate is ongoing in 66 out of 100 of the country's top 100 housing markets. According to the U.S. Census Bureau, a new record for existing home sale prices hit 5.3 times the median household income in 2021, a record height well above the previous peak of 4.9 in 2005.

Several metros saw increases exceeding 20% in the first quarter of 2022, with rents rising 12%. According to the JCHS, the rent for professionally managed housing increased 11.6% in 2021, and the rent for single-family housing increased 12.4% year over year (YOY) in the first quarter of 2022. 116 out of 150 analyzed metro markets had double-digit rent growth in the first quarter of 2022, while 25 had rents that exceeded 20% in the first quarter of 2022.

One of the reasons for the rise in single-family housing is that households who can work remotely have a greater need for more living space than ever," says Daniel McCue, a senior research associate at the JCHS. As a result, investors have sought out moderately priced properties to either convert to rentals or upgrade them to resell.

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