By Lisa Sturtevant, PhD Chief Economist, Virginia REALTORS®
Tracking economic and housing market trends can help tell us where we’ve been. But it is just as important—and perhaps even more important—to look ahead and forecast where the economy and the housing market may be heading over the next few months and into next year.
Where Have We Been? A Look Back on 2020 and Early 2021
We know that 2020 was an unprecedented year, and 2021 continued to offer extraordinary challenges and uncertainties. In Virginia, the economy lost nearly half a million jobs last year with the onset of the COVID-19 pandemic. The economy has been adding jobs slowly and steadily for the most of the past 16 months, but we are still far below pre-pandemic job totals.
While the economy faltered and has been improving slowly, the housing market rebounded strongly after a deep dive in the spring of 2020. The hot housing market continued into 2021, fueled by strong demand, low mortgage rates, and a trend in working from home.
Where are We Headed? An Outlook for the Rest of 2021 and 2022
According to our forecasts, the state’s economy is expected to add about 62,000 jobs in 2021, which is a little slower than we might have thought earlier this year. The rise of the delta variant and the renewed uncertainty among consumers and businesses slowed economic progress somewhat. The outlook is for the state to add about 79,000 jobs in 2022, bringing job totals back close to pre-pandemic levels by the end of next year.
The unemployment picture will continue to improve. It is projected that the unemployment rate in the 4th quarter of 2021 will be 3.5% and will fall to 3.0% by the end of 2022.
Overall, these job and unemployment forecasts reflect the fact that our economy right now is still being driven by COVID. We need to push through the uncertainty and backtracking brought on with the delta variant and 2022 should bring even more solid economic growth both nationwide, but also here in Virginia.
Housing Market Outlook
In 2021, home sales activity is going to surpass even the strong performance of 2020. Our projections are for a total of about 148,600 home sales statewide in 2021, which is up 6.2% from 2020. These projections assume that the market is returning to more seasonal patterns this year, with a slowdown in sales activity heading into winter.
Next year will be a little different. We are forecasting that sales activity will be down by just about a tenth of a percent in 2022, due primarily to rising affordability challenges, continued low inventory, and a slight uptick in mortgage rates.
In 2021, we are expecting the median home price in Virginia to increase by 9.2% over 2020. Prices will continue to rise in 2022, though the rate of price growth will slow as demand softens and inventory expands a bit. We’re forecasting that prices will be up by about 4.1% in 2022, making it a more typical year for price appreciation.
We are forecasting that a total of about 37,000 new housing units will be built in Virginia in 2021, which is up 10.3% compared to 2020. New construction is expected to stabilize in 2022 with just a modest increase in the number of new homes built.
It is expected that the 30-year fixed-rate mortgage rate will be 1% in December of 2021 and will rise to 4.0% by the end of 2022.