There’s a reason today’s buyers keep struggling to buy homes. Home prices have soared to almost unbelievable levels this year, putting buyers at a great disadvantage.
In July, home prices rose 19.7% from July, according to the S&P CoreLogic Case-Shiller Index. And an investment bank is convinced that there is still room for growth.
House prices could continue to rise
Goldman Sachs has some bad news for potential homebuyers. She expects house prices to rise another 16% by the end of 2022.
Why the sustained upward trend? It could result in low inventory.
When a particular product is not readily available, prices can skyrocket. This is the case today in the housing market. At the moment there aren’t enough homes for sale to meet buyer demand. And inventory levels could easily remain sluggish well into 2022, which would cause home prices to continue to rise.
A major reason the housing stock is so limited is that many sellers fail to list their homes, likely due to the pandemic and the general uncertainty that has caused it. The pandemic doesn’t seem to be over yet, and unfortunately there is reason to believe that COVID-19 will be with us well into 2022. With that in mind, we may not be bringing many more homes to market, especially at the beginning of the year, as listings tend to be slow during the winter months during times when there is no pandemic.
Will Low Mortgage Rates Help?
House prices may hit record highs, but on the positive side, mortgage rates are currently near record lows where they were for most of the year.
Home buyers with good credit ratings could snag affordable home loans that can help offset higher home prices. Additionally, mortgage rates are likely to stay low well into 2022, so even if property prices continue to rise, buyers are unlikely to be entirely unlucky.
Still, there are risks involved in buying a home at an extremely high price, and those risks go beyond fighting mortgage payments. Buyers who pay for homes today risk losses in having to sell those homes in the short term. And if the pandemic has taught us anything, it is that circumstances can change overnight. Therefore, buyers today should proceed with caution – even if they can afford the homes they overpay for.
As soon as housing supply catches up with buyer demand, home prices should come down. But when that will happen remains to be seen.
In addition to rising property prices, Goldman Sachs also expects rental rates to continue to rise. Housing is already the typical American’s largest monthly expense. Unfortunately, financing a home – whether to buy or rent – could prove difficult in the short term until the housing market cools down.