Investment Banking Giant Predicts Home Prices Will Rise Another 16% by the End of 2022

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Talk about good news for sellers.

There's a reason today's buyers keep struggling to purchase homes. Home prices have soared to almost unbelievable levels this year, putting buyers at a huge disadvantage.

In July, home prices rose 19.7% from the previous July, according to the S&P CoreLogic Case-Shiller Index. And one investment banking firm is convinced that there's still room for growth.

Home prices could rise even more

Goldman Sachs has some bad news for prospective home buyers. It expects home prices to keep rising, to the tune of another 16% by the end of 2022.

Why the continued uptick? It could boil down to low inventory.

When there's not enough supply of a given item, prices can soar. Such is the case in the housing market today. Right now, there aren't enough homes for sale to meet buyer demand. And inventory could easily remain sluggish well into 2022, leading home prices to keep rising.

A big reason housing inventory is so limited is that many sellers have held off on listing their homes, likely due to the pandemic and the general uncertainty it's caused. The pandemic seems far from over, and unfortunately, there's reason to believe that COVID-19 will be with us well into 2022. In light of that, we may not see many more homes hit the market, especially during the early part of the year, since listings tend to be slow during the winter months in non-pandemic times.

Are low mortgage rates helping?

Home prices may be at record highs, but one positive is that mortgage rates are currently near record lows, where they have been for much of the year.

Home buyers with good credit might snag affordable home loans that can help offset higher home prices. Furthermore, mortgage rates are likely to stay low well into 2022, so even if home prices continue to climb, buyers probably won't be totally out of luck.

Still, there are risks to buying a home at an ultra-high price, and those risks extend beyond struggling to keep up with mortgage payments. Buyers who pay up for homes today risk taking losses if they need to sell those homes in the near term. And if the pandemic has taught us anything, it's that circumstances can change overnight. That's why buyers today should proceed with caution -- even if they can afford the homes they're overpaying for.

Once housing supply catches up to buyer demand, home prices should come down. But when that will happen is anyone's guess.

On top of rising home prices, Goldman Sachs also thinks rent prices will continue to soar. Housing is already the typical American's largest monthly expense. Unfortunately, in the near term, affording a home -- whether a purchase or a rental -- could prove challenging until the residential real estate market cools off.

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