2022 home prices will keep rising at or near double digits, predicts the analyst who called the current housing boom

In a recent interview of Ed Pinto with Fortune’s Shawn Tulley on the current state of the housing market, Tulley noted that Ed Pinto makes the most accurate predictions of all the real estate world’s data-crunchers on where housing prices are heading. Pinto, director of the American Enterprise Institute’s Housing Center and former chief credit officer at Fannie Mae, is constantly assembling proprietary data on newly issued mortgages that provide a road map for the months ahead.

 

And what’s Pinto seeing now? He’s convinced the naysayers are wrong and that the gangbusters, double-digit run for home prices will keep rolling well into 2022. “Over the past three or four months we’ve heard lots of hand-wringing about a buyers’ strike, talk that people aren’t buying as many homes as before,” he told Tulley in an interview on Oct. 27. “That’s a fake narrative.”

The special forces that will (most likely) keep housing hot:

  • Although rates are up from a couple of months ago, they’re still extremely modest versus history.
  • The government-sponsored agencies that guarantee the vast bulk of America’s home loans are loosening standards, for example, eliminating the limit on “risk layering” by Fannie and Freddie and raising their affordable housing goals.
  • Inventories of houses for sale are extraordinarily slender. Loads of buyers are bidding for a narrow choice of listings that sell fast, a dynamic that’s driving prices skyward. Even the potent rebound in new construction isn’t enough to match the rampage in buying. The standard dividing line between a buyers’ and sellers’ market is six months of inventory. Today, the stock of houses featuring for-sale signs sells out in six weeks.

The great arbitrage: migrating from the high-priced to bargain metros

For the first time, homebuyers can collect their Manhattan, or San Jose or Los Angeles salary, sell their high-ticket homes there, and buy something much bigger and better in Phoenix, Boise, or the Inland Empire, while trading their cubicle in a city center high-rise for a home office.

 

Buyers fleeing coastal cities are buying in the top tiers in inexpensive Sunbelt metros, where the bigger, fancier homes cost a lot less than the ones they’re selling.

 

Though upscale choices in the bargain locales are appreciating faster than rivals in a San Francisco or Seattle, the gap remains enormous, and a powerful magnet for families unshackled to shop the nation for great buys. “I was looking at the median-priced house in San Jose,” says Pinto. “It was $1.16 million in September 2020.” Meanwhile, the average in Phoenix was only $325,000, 28% of the price of the average in San Jose. Pinto continues, “Last year, that house in San Jose rose 8% to $1.25 million, and the one in Phoenix increased three times faster, at 25%, to $405,000. But the house in Phoenix still cost just one-third as much as the house in San Jose.”