Economist expects a seller’s market for next few years

Silicon Valley Realtors are learning more from economists about their outlook for the economy and real estate market. At a recent Silicon Valley

Association of Realtors district meeting, Charlie Dougherty, vice president and economist with Wells Fargo Economics, analyzed the U.S. economy

now that COVID-19 restrictions have eased across the country.

Dougherty said despite headwinds created by Omicron and other COVID-19 variants, America’s economic recovery is closer to pre-pandemic levels compared to other countries. The U.S. is expected to experience strong growth rates over the next few years, though the pace of growth may be moderate.

Supply bottlenecks are slowly easing, the labor market is also recovering. Unemployment is falling

and jobs are gaining momentum. Employees are raising wages to attract and retain workers. Wages have grown particularly in lower paying industries which are struggling to get workers back to the workplace. Although businesses continue to report it is still a challenge to find qualified workers to fill open positions, the labor force should gradually improve as Covid risks abate and accumulated savings from the Federal stimulus dwindles.

Inflation is expected to remain elevated in 2022, but look for more moderate price increases later in the year as supply and demand imbalances normalize, said Dougherty. He noted the Fed is set to raise rates multiple times this year.

“Housing is a bright spot in the economy,” said Dougherty. Low mortgage rates fueled an inventory challenge and led

to upward price growth. Supply is also being challenged by building material shortages and labor availability, which have led to project delays and postponements, limiting the extent to which builders can catch up to soaring demand.

The demand for housing is so strong and the race for space is so tight, said Dougherty. Home prices keep increasing and construction prices are rising, as well. To add to these, demographic shifts will continue to have a profound impact on the economy and housing market. Millennials are among the largest group of homebuyers today and so far, account for 43 percent of all homebuyers.

Baby boomers want to downsize but cannot find homes to move to.

“All are coming together at this very moment,” said Dougherty. “Structurally we’re underbuilt, so even if home prices continue to rise and interest rates trend upward, it will be a seller’s market for the next few years,” said Dougherty.

The uncertainty of the outcome of the Russiaukraine conflict is a wild card. Dougherty said the conflict has shocked the world market and driven

up oil prices. Although the economies of both of these countries are relatively small and the U.S. has insignificant trade exposure to both countries, much of Europe is heavily dependent on products from these countries, so the conflict represents a clear downside risk for economic growth.

The conflict has sparked sharp increases in commodity prices as the Russia-ukraine region produces and exports oil, natural gas, and a large amount of wheat, corn, soybeans. Russia is also the world’s largest

supplier of wheat, and together with Ukraine accounts for nearly a quarter of total global exports. The conflict could further hurt the global

economy and that of the U.S. the longer it drags on.