Following a second consecutive year in which the word “unprecedented” did more than its fair share of narrative heavy lifting, economists are wary of 2022: Sharply rising prices and the unknown severity of the coronavirus’s omicron variant cast twin shadows over forecasters’ expectations, but some found reason to be optimistic in the face of such unknowns.
The fastest-moving omicron variant is proving to be the most dangerous short-term wild card.
Early indications point to less-deadly outcomes, prompting forecasters to be cautiously optimistic, according to Liz Young, chief investment officer at SoFi. According to her, the United States is better positioned now than it was a year ago or even when the delta variant triggered a surge in caseloads in the summer and early fall. Experts acknowledged, however, that a deterioration in epidemiology could upend the widely held view in markets that subsequent Covid waves will continue to have smaller economic impacts.
According to the National Association of Realtors, the median price for an existing home rose to just under $354,000 in November (the most recent month for which data are available), representing a 14 percent annual increase. Economists predict that rising interest rates will put a damper on home price gains next year, because paying more to service mortgages leaves homebuyers with less money for monthly payments.
In a new report, Daryl Fairweather, chief economist at online real estate platform Redfin, predicts that real estate activity will increase in the first half of the year as buyers and sellers alike scramble to close deals before interest rates rise. She predicted that 30-year mortgage rates would rise from their current level of around 3% to 3.6 % by the end of next year, amounting to an extra $100 per month at the median. Despite the rate pressure, Fairweather predicts that home prices will rise by only 3% next year.
Fairweather forecasted another year of rising rents, predicting a 7% increase nationwide in 2022. “Demand for rentals will be high for a variety of reasons,” she predicted. Furthermore, she stated that the booming labor market and the ability of many knowledge-economy workers to do their jobs remotely may increase demand for rentals if newly arrived residents want to rent before purchasing homes.
According to economists, the supply of homes will continue to be a problem. According to a June report commissioned by the National Association of Realtors, the U.S. housing market has a demand-supply gap of 6.8 million units, and higher material and labor prices will make closing the gap even more difficult.
Despite bouts of volatility, 2021 was a record-breaking year for stocks, with equities regularly setting new highs. However, with the gains in the rearview mirror, market experts predict a return to sobriety next year.
A reduction in non-essential spending could mean that rising prices begin to crimp consumer spending, foreshadowing impending economic pain that could spill over into other categories of spending, squeezing earnings and triggering a Wall Street downturn.
It would not be an exaggeration to call 2021 the year of the worker, and experts predict that the new year will be more of the same — at least at first. According to a recent survey of chief financial officers conducted by the consulting firm Deloitte, companies expect to invest in and spend on equipment, technology, and human capital next year.
Nonetheless, even Federal Reserve Board Chairman Jerome Powell acknowledged that policymakers were perplexed by the extent to which labor force participation remained low this year. According to experts, the U.S. workforce will return to pre-pandemic levels in the new year, but only to a point. Some of the changes brought about by Covid-19 are likely to become long-term, if not permanent, fixtures of the labor market.
The issue of inflation is critical because it affects so many aspects of the economy, including Federal Reserve policy and interest rates paid by borrowers, as well as prices on goods and services purchased by individuals and businesses.
One bright spot is the elevated rates of accrued savings many U.S. families still hold. Bank data show that such reserves are dwindling, but some experts held out the hope that they could last long enough to buffer escalating inflationary pressures.