Back in May, The Atlantic published an article titled “Why You Should Wait Out the Wild Housing Market,” which argued that the “ludicrousness” would soon exit the market. It’s understandable why some homebuyers would want to take that “wait it out” approach. After all, home prices can’t go up at double-digit rates forever. But so far, buyers have had no luck: Since that article ran, home prices are up another 6%.
Unfortunately for those sidelined buyers, there’s more bad news. In the next 15 months—through the end of 2022—Goldman Sachs is forecasting U.S. home prices will soar another 16%. While that represents a slight deceleration in the growth of home prices—which are up 17.7% over the past 12 months alone—it’s hardly price relief for buyers. Simply put: The investment bank thinks the housing market frenzy set off during the pandemic has a lot more room to run.
“The supply-demand picture that has been the basis for our call for a multiyear boom in home prices remains intact,” the Goldman Sachs researchers wrote in their report. “Of all the shortages afflicting the U.S. economy, the housing shortage might last the longest.” They don’t see prices correcting anytime soon; in fact, they are forecasting another 6.2% jump in 2023.
Why the bullish outlook?
While the housing market has lost some steam in recent months, Goldman Sachs said, there’s still a supply and demand mismatch in the favor of sellers. Here’s how the Goldman Sachs researchers explained the strength on the demand side: “Demographic tailwinds are likely enough to prevent the supply of homes from normalizing quickly in the near term. We estimate that demographic changes—most importantly, millennials moving into the age range where household formation and homebuying tend to peak—have boosted the trend rate of household formation to roughly 1.3 million per year.”
As Fortune has previously reported, we’re in the middle of the five-year period during which the largest chunk of millennials, those born between 1989 and 1993, are hitting their thirties—the age when first-time homebuying really kicks into gear. The housing market—which is also benefiting from recession-induced low mortgage rates—simply doesn’t have enough homes available to meet that demand. We knew this wave was coming, however; in the decade following the 2008 housing crisis, homebuilding was too conservative. That’s why the nation is now under-built by around 4 million homes.
This Goldman Sachs forecast is, of course, terrible news for would-be homebuyers who thought the COVID-19 housing market was bound to pop soon and erase some gains. That said, there are some silver linings for homebuyers. While prices are unlikely to come down, inventory levels are rising again—up 30% since they bottomed out at a 40-year low this spring. That has translated into a substantial decrease in the number of homes seeing multiple bids (a.k.a. bidding wars). If it continues, it would likely increase how long homes sit on the market. That’s not price relief, but it would at least give shoppers more time to make what will likely be the biggest financial decision of their life.
Of course, not everyone is as bullish as Goldman Sachs. CoreLogic, a real estate data firm, is forecasting just a 2.2% uptick in U.S. home prices during the same period. Meanwhile, for the 2022 calendar year, John Burns Real Estate Consulting and Freddie Mac are forecasting home price growth of 4% and 5.3%, respectively. There is one notable exception: Zillow. The online real estate marketplace is forecasting a huge 13.6% appreciation in U.S. home values over the coming 12 months.