National Economic Outlook
By Ingo WinzerApril 2022
The surge in home prices continues to dominate developments in real estate markets. Even though the largest jump in prices probably has already occurred, further increases will take place in 2022 and into 2023, leaving prices in most markets well above the level that local incomes can support. Even if the war in Ukraine doesn’t pull the US economy back into a recession, these high prices will crash in many local markets.
The general rise in home prices is, and will not be, matched by higher rents, which only rise as fast as local incomes. Investors who buy a rental property in the next year should not be optimistic about the returns they can generate.
In the meantime, the economy is doing well. Although the number of jobs still has not returned to the pre-pandemic level, the overall growth of jobs since late in 2021 is a strong 2 percent, including 2.2 percent in construction, 2.2 percent in retail, and 2.5 percent in the large business services sector.
The final bill at the end of 2021 is that 2 percent of all jobs in healthcare and education were lost during the pandemic, as well as 3 percent of jobs in government. Most of these jobs are gone for good, or at least for a good number of years, and new growth in these sectors so far is poor. This will have a lasting impact on many local real estate markets.
9 percent of jobs at restaurants also were still missing at the end of the year, but growth in that sector has since been strong and will increase with the winding down of pandemic restrictions.
The possibility of economic dislocations created by the war in Ukraine, and the already unsustainable levels of home prices mean that a defensive posture is best for real estate investors in 2022.
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