Is the home buying party winding down? If a new forecast turns out to be correct, home price growth for existing single-family homes will taper off significantly next year.
A report released by the Urban Land Institute (ULI) predicts that following an 11.4% rise in the prices of existing single-family homes last year, that figure will dip to 8.1% in 2021 and then drop to 5% in 2022 and 4% in 2023. This is more in line with average home price growth over the years.
In April, the median home price of an existing single-family home in the U.S. stood at $347,400, according to the National Association of Realtors. That represented a year-over-year spike of 20.3%. Both the dollar amount and the percentage increase were record highs.
Buyer sentiment waning
Buyer sentiment undoubtedly will play a big role in how home prices of existing single-family homes pans out this year and beyond. For now, that sentiment is waning. A Fannie Mae survey shows just 35% of consumers questioned in May thought it was a good time to buy a home, down from 53% in March.
The 35% figure was an all-time low in the history of the survey. Reasons cited for the diminished consumer sentiment include high home prices, seen in the data for home price growth, and low housing inventory.
The ULI report also forecasts single-family housing starts will level off in 2022 and 2023. Last year, housing starts exceeded the 20-year average for the first time since the Great Recession, totaling 990,500. The report foresees 1.1 million housing starts this year, and 1.2 million each in 2022 and 2023.
Impediments to housing starts
Mounting materials costs and a continuing labor shortage could impede housing starts, though.
In May’s survey for the National Home Builders Association/Wells Fargo Index, builders of single-family homes reported an average 26.1% rise in materials costs compared with the same time last year.
In terms of labor, 357,000 construction jobs remained unfilled in April, according to the U.S. Bureau of Labor Statistics. That was the highest number of unfilled jobs in the construction market since May 2019. The National Association of Home Builders says attracting skilled labor to the construction industry “will become more challenging as the rest of the economy reopens.”
ULI based its forecast on insights from more than 40 U.S. economists and industry analysts. Here are other highlights of the forecast:
- GDP growth is projected at 6.5% this year following the pandemic-ravaged year of 2020. GDP growth is expected to be 3.9% in 2022 and 2.5% in 2023.
- The U.S. economy is expected to add 5.1 million jobs in 2021, 3 million in 2022 and 2.1 million in 2023.
- The U.S. unemployment rate is projected to decline to 5% by the end of this year, and further fall to 4.1% by the end of 2022 and 4% by the end of 2023. That compares with 3.9% in 2019. More than 9.4 million jobs were lost in 2020.
- The volume of commercial real estate deals is expected to jump to $500 billion this year, up from $427 billion in 2020. Deal volume is projected to climb to $550 billion in 2022 and $590 billion. Those figures would still fall short of then $590 billion in deals executed in 2019.
- Judged by returns, industrial promises to be this year’s hottest commercial real estate sector. The growth rate for Industrial is predicted to hit 12% in 2021 (up from 11.8% in 2020), but then decrease to 9.3% in 2022 and 8.2% in 2023. Meanwhile, the apartment, office and retail sectors should be in the single digits for return growth rates in 2021, 2022 and 2023.
- Growth of revenue per available room (RevPAR) in the hotel category will start climbing back in 2021. The RevPAR growth rate plummeted to 47.4% in 2020. However, the growth rate is expected to return to positive territory (29.6%) this year, followed by projected rates of 20% in 2022 and 10% in 2023.