Mainstreet's Economic Forecast 2022 Recap


It’s been an unpredictable start to the new year, with the omicron variant disrupting months of progress in getting the pandemic under control. Despite this, there are things to be thankful for. In 2021, the economy saw significant growth, the unemployment rate went back to normal and many job opportunities opened up.

At Mainstreet’s recent 2022 Economic Forecast, Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research of the National Association of REALTORS®; and Dr. Anthony Chan, Chief Economist & Chairman of Chan Economics LLC; shared their thoughts on 2021 and where the Chicagoland real estate market is going this upcoming year. 

Residential real estate will remain lucrative 

In the Chicagoland area in 2021, closed sales were up 14.5% over 2020, while the median sales price rose 11.6% over the same period. This double digit growth was thanks to a demanding market and tight inventory. With residential properties spending 31.7% less time on the market in 2021 than 2020, it was clear all year that it was a sellers’ market and that trend is likely to continue. 

Land development and land sales will be especially profitable due to the home inventory shortage. But be aware that there is also high demand for the goods needed to build homes thanks to supply chain disruption.

Dr. Yun predicts next year’s unit sales will come down slightly but prices will increase because of the continued home shortage. He anticipates inventory will increase, but not enough to balance out the demand.

“For residential REALTORS®, if last year was good, this year is essentially matching conditions of last year,” Yun said.

Office occupancy is stabilizing but remains an issue in Chicagoland

Commercial real estate (CRE) occupancy rates are increasing in retail, multifamily and industrial properties as of Q3 2021, but there is one CRE category where that’s not the case. Office building occupancy was hit hard by the pandemic and vacancy rates are still rising. Dr. Yun predicts vacancy rates to continue to grow in 2022.

At a local level, a 12-month negative net absorption of office space showed Chicago lost 5.7 million people in office occupancy. Where might these people have gone? Many companies allow employees to work from home, but Dr. Chan also credits many individuals retiring early thanks to a friendly stock market which may have offered them a financial off-ramp. 

If they haven’t begun working remotely or retired, they may have moved South. Dr. Yun mentioned that the top three cities where there was positive net absorption over a 12-month period were Austin, Miami and Palm Beach. This may be thanks to warmer weather and friendlier tax and business regulations. 

Dr. Yun still sees commercial real estate as a worthwhile investment.

“The housing market is on solid ground, bank/financial balance sheets are on solid ground, therefore if you see a good business opportunity in commercial real estate, the money will be there for lending,” Dr. Yun said.

Expect inflation and mortgage rates to rise this year

Dr. Chan and Dr. Yun both addressed the concerns around rising inflation and mortgage rates. For historical context, back in 2018 and 2019, the Federal Reserve was under pressure to lower interest rates. They did not lower the rates until the pandemic arrived. They then lowered rates very aggressively. This led to the money supply increasing dramatically. 

Since the pandemic started, the money supply is up 39%. Dr. Chan says we’ve never seen it increase so significantly in our lifetimes. With the money supply tripling, inflation is up 7.1% percent — twice the historical average. He believes we’re lucky that inflation isn’t higher.

For those worried about inflation, Dr. Chan and Dr. Yun agree residential homes are one of the best protections against inflation. 

“Inflation is no match for real estate,” Dr. Chan said.

When it comes to real estate, a 30-year average mortgage interest rate is at around 3.58%. Dr. Yun predicts a 3.7% mortgage rate by Q4 of 2022. Dr. Chan thinks it could go even higher.

“They say nothing is a sure bet, but [interest rates rising] is as close as they come,” Dr. Chan said.

Dr. Chan believes interest rates could go up three to four times in 2022. For every 25 basis point that rates are raised, the average monthly payment on a starter home goes up 3%. So if a rate increases a full point, the average monthly payment on that same home would go up 12%.

For REALTORS® working with clients, consider letting them know that locking in a mortgage rate now could save them significant money down the road.

Mainstreet members, we’d love to hear how these economic predictions compare with what you’re seeing in your own work, and how your brokerage is preparing for the rest of the year. You can tell us more on Facebook and Twitter.  

Other notes

Amid an uncertain economy, we have seen progress in the job market, pending home sales settling to pre-pandemic levels, Commercial Real Estate turning a corner with office occupancy, robust demand for multifamily, and demand for industrial space. Mainstreet is excited to set its sights on what 2022 will bring.

Occupancy rates of commercial real estate has stabilized

Home sales were up essentially 15% with prices rising close to 12%. 

Mortgage payment to income is manageable. Money will be there for lending. Bad news for renters but good nes for those who lease.

Mortgage rates set to rise. 3.7% mortgage rate in 4th quarter this year. Prepare for this situation. Inventory remains low and therefore land development and land sales there is a clear opportunity. 

2021 is looking like 7% increase unit sales. Dollar volume increase 

Next year sales will come down somewhat but prices will increase because of shortage. Inventory is coming but will not balance our. Prices will increase. “For residential realtors, if last year wa good, this year is essentially matching conditions of last year”

Apartment unit buildings will be rising because rents are rising. Office vacancies are rising. Vacancy rate will continue to increase for offices in 2022.