Real estate market conditions and values in the U.S. are expected to rebound in 2021 and trend even higher in 2022, with single-family homes outperforming other sectors such as commercial, retail, hotel and rentals, according to a report released by the Urban Land Institute on Thursday.
New single-family construction starts will fall slightly to 871,250 in 2020 before rising to 940,000 in 2021 and 975,000 in 2022, the highest level since 2006, according to the Urban Land Institute, a Washington, D.C.-based nonprofit that promotes sustainable community development throughout the country.
In the meantime, home prices will grow an average of 4.1% over the next three years, above the long-term average of 3.9%, according to the report, based on a survey of 43 economists at 37 leading real estate organizations.
“The worst fears of earlier this year have mostly eased,” William Maher, principal of Maher Strategies and author of the report said. While uncertainties, related to the coronavirus pandemic and the presidential election, remain, “as of now, leading real estate economists are signaling that resilience and underlying strength will likely win out over uncertainty and risk,” he said.
The Urban Land Institute conducts semi-annual surveys—one in the spring and one in the fall—on real estate and macroeconomic fundamentals.
The economists had expected the U.S. GDP would decline 6% in 2020 in the spring survey, but now adjusted the forecast to a 5% decline. However, they lowered their estimate of the economic growth rate of 2021 to 3.6%, from 3.9% forecasted six months earlier.
Other real estate sectors will lag behind single-family housing in the coming two years but will hold up much better than economists had expected in the spring.
Commercial real estate price growth, measured by the Moody’s RCA Commercial Property Price Index (CPPI), is expected to fall 2% in 2020 rather than a projected 7% decline in May. The index is expected to flatline in 2021.
Retail vacancy, meanwhile, is expected to be 11.3% in 2021 and 2022, up from the 10.6% in 2020 and above the 20-year average of 9.7%. Office vacancy rates are expected to rise to 14.8% in 2022, above the 20-year average of 14%, according to economists’ forecast.