Will the pandemic economy bounce back next year? Here’s what experts predict.
Via NBCnews.com
By Martha C. White
After a second consecutive year in which the word “unprecedented” did more than its fair share of narrative heavy lifting, economists are looking ahead to 2022 with a sense of wariness: Sharply escalating prices and the uncertain severity of the omicron variant of the coronavirus cast twin shadows over forecasters’ expectations, but some still found reason for optimism in the face of such unknowns.
“2022 is what I’m going to call a transition towards normalcy,” said Eric Diton, the president and managing director of The Wealth Alliance, an investment advisory firm. “It means the global economy is going to continue to grow but not nearly at the rates that we saw in 2021. It means that inflation will still be stubborn — but going into the latter part of 2022, I think we’re going to solve a lot of those supply chain and employment issues,” he said.
Here are the top issues economists have on their radar for 2022:
The pandemic
The fast-moving omicron variant is proving to be the biggest near-term wild card.
The housing market
According to data from the National Association of Realtors, the median price for an existing home rose to just under $354,000 as of November (the most recent month for which data are available), an annual increase of around 14 percent. Economists predict that the prospect of higher interest rates could act as a brake on home price gains next year, because paying more to service mortgages leaves homebuyers with less money for payments each month.
Daryl Fairweather, the chief economist of the online real estate platform Redfin, said in a new report that real estate activity will spike in the first half of the year as buyers and sellers alike scramble to close deals before rates rise. She predicted that 30-year mortgage rates will rise from their current level of about 3 percent to 3.6 percent by the end of next year, which would translate into an additional $100 a month at the median. Despite the rate pressure, however, Fairweather predicted that home prices will tick up by just 3 percent next year.
But while home prices might be cooling, renters aren’t going to get any kind of relief yet. “Rents are increasing at double digits,” said Jay Hatfield, the founder and CEO of Infrastructure Capital Management.
If the government still calculated inflation today using the same models it used back in the 1970s, the spike in rent costs this year would have been reflected in a real inflation rate north of 10 percent — a big reason the current inflationary climate has created greater financial challenges for renters. “This has basically never happened before. We’ve never had this kind of national inflation for rent,” Hatfield said.
Fairweather predicted another year of higher rents, estimating a 7 percent increase nationwide in 2022. “Demand for rentals will be strong for several reasons,” she said. “The end of mortgage forbearance will cause many homeowners to sell and rent instead. As the pandemic subsides, more people will choose to live in cities where it is more common to rent.” In addition, she said, the booming labor market and the ability of many knowledge-economy workers to do their jobs remotely could also trigger demand for rentals if newly arriving residents want to rent before they buy homes.
The supply of homes will remain an issue, economists say. A report in June commissioned by the National Association of Realtors found that the U.S. housing market has a demand-supply gap of 6.8 million units and that higher prices for materials and labor will make closing the gap even more challenging.
The stock market
Despite bouts of volatility, 2021 was a gangbusters year for stocks, with equities notching record highs regularly. With the gains all but in the rearview mirror, however, market professionals predict a return to sobriety next year.
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The labor market
It would not be an exaggeration to label 2021 as the year of the worker, and experts said the new year is likely to reflect more of the same — at least at first.
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Inflation
The inflation question is paramount because it touches so many facets of the economic landscape: Federal Reserve policy and interest rates paid by borrowers, as well as prices on goods and services bought by individuals, as well as companies.
“I would argue what we’re seeing right now with inflation is a combination of two things. It’s a perfect storm,” said Brad McMillan, the chief investment officer for Commonwealth Financial Network. High demand for goods triggered by service-sector shutdowns and by supportive monetary and fiscal policy that was rolled out last year was on a collision course with a global supply chain that had effectively had sand poured into its gears.
“All of a sudden, the demand for things spiked just as the supply of things cratered. The question going forward is is that going to continue?” McMillan said.
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.
“I think the wild card here — and it gives Jerome Powell a little more flexibility — is the net worth of the U.S. household continues to get substantially larger,” Wagner said. Shepherdson, of Pantheon Macroeconomics, estimated that U.S. households will draw down $600 billion worth of savings next year.
Markets had been pricing in a trio of interest rate hikes in 2022 for much of the final quarter of 2021, which was reflected in the economic projections the members of the Fed’s policymaking committee made in December. The big unanswered question is whether that will be the right amount of tightening for an economy that has been anything but predictable over the last 22 months.
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