Home prices may be skyrocketing, but there doesn’t appear to be a bubble on the horizon, with dozens of economists indicating in a new report that an array of economic indicators should remain healthy for at least the next few years.
The report, out Tuesday from the Urban Land Institute, is based on a survey that solicited responses in late April and early May from 42 economists and analysts who work in real estate. Overall, the report paints an optimistic picture of the near future.
For example, the report indicates that single family housing starts should jump up from 990,500 in 2020 to 1.1 million in 2021. Housing starts should increase further to 1.2 million in both 2022 and 2023.
All of those numbers, including 2020’s, are higher than at any point in the last decade. That’s significant because economists have previously pointed to a decade-long building shortfall as a major contributor in the current inventory shortage.
In addition to more housing starts, the report additionally indicates that home prices should continue rising, though at a more moderate rate than 2020, when prices jumped a whopping 11.4 percent.
Specifically, in 2021 prices should rise 8.1 percent — which is still higher than at any point in the last decade — followed by 5 percent in 2022 and 4 percent in 2023. If these projections come true, it would actually mean that home prices will grow less in each of the next two years than they did during most years since 2012.
The report also includes positive news for the rental sector. Among other things, it indicates that vacancy rates for apartments should hit 4.55 percent in 2021, then fall to 4.38 in 2022 and 4.18 in 2023.
All three of those numbers are far lower than the 20-year average. And by comparison, the vacancy rate in 2009 — amid the tumult of the last housing bubble — was 7.2 percent.
Unsurprisingly, given falling vacancy rates, returns on investments in apartments should also be up from just 1.8 percent in 2020 to 5.6 percent in 2021. Returns should keep rising to 6.7 percent in 2022 before dipping very slightly to 6.5 percent in 2023.
While these numbers may be discouraging to consumers who have lately been fighting brutal bidding wars and hoping for a drop in prices, they overall suggest that the housing market will remain healthy for the foreseeable future. That’s largely the same conclusion that a number of economists who recently spoke to Inman came to. But the new report is significant for drawing on dozens of different experts to piece together an even more comprehensive look at the future economy.
In a statement about the new report, William Maher — a ULI member and director of strategy and research at real estate consulting firm RCLCO — said that many metrics such as housing starts and rent growth are ultimately expected to “outpace long-term averages.
“While the fall 2020 forecast was notable in its reversal of many of the pessimistic forecasts from spring 2020,” Maher added, “the current forecast goes even further, with several forecasts now ahead of long-term averages.”
Email Jim Dalrymple II