Economic Forecast for Housing Market

On July 12th we welcomed Rob Dietz Chief Economist and Senior Vice President for Economics and Housing Policy for the National Association of Home Builders to discuss the future of the Housing Market.
Rob started by warning that it was not the most “fun” of forecast. Click Here to Download the slide deck.

He opened with the High Level Findings that:
– The Federal reserve aggressively tightening monetary policy with Interest rates surged at start of 2022.
– Forecast now includes a mild recession in 2023.
– Single-family construction will be flat; while multifamily, remodeling will start expanding as demand for more space in homes continues.
– Housing affordability will decline in 2022 and 2023. Communities with ability to add affordable housing will grow.

Graph showing Government Deficits Growing Chart from Rob Dietz Report
Government Deficits Growing Chart from Rob Dietz Report

Rob admitted that Housing Recovery from the 2020 Covid-19 recession was a lot faster that economist had originally predicted. The influx of funding from the stimulus payments is now gone and we are in a tail wind. He predicts this means that taxes will be raised to help with long term interest rates.

In workforce news there are more than 11 million jobs open, and that obviously applies to the lack of skilled labor we are seeing in the building industry. Even with unemployment we would still have 4 million jobs open, as there are just not enough people in the labor force. This emphasizes the need for recruiting, training, and maintaining your employees.

While the US still hasn't recovered in the employment sector, North Carolina is strong with 2% more jobs than before the recession. Asheville is where it was before the recession.
While the US still hasn’t recovered in the employment sector, North Carolina is strong with 2% more jobs than before the recession. Asheville is where it was before the recession.

The other main goal for NAHB, State, and local HBA’s is to get more workers into the labor force. This includes targeting women (since construction has traditionally been a male dominated field) and de-stigmatizing labor as a less than career. Another goal is to interact with the youths and encouraging careers in construction. North Carolina Home Builders is going about this by creating trailers to visit elementary, and middle schools promoting work in the trades.

There are currently 3.2 million in residential construction labors. 740,000 occupational openings per year
Based on industry growth and permanent worker exits. Keep in mind: 22% of workforce is self-employed.

Inflation became the next topic that was discussed since inflation hit a fresh 40-year high in May. They are predicting that it will go down in 2024, but that is still to be seen. On slide 13 in the deck the green text in the graph is what Rob is thinking is going to happen. This includes interest rates for mortgages staying flat at around 6% into 2024.

Housing Affordability Declines? NAHB/Wells Fargo HOI Lower - dipped below the great recession.
Housing Affordability Declines? NAHB/Wells Fargo HOI Lower – dipped below the great recession.

Which lead to discussions in housing affordability, which the NAHB is predicting will be a hot topic in upcoming elections. Driving housing demand in our area is population growth. North Carolina is experiencing 3x growth, while the Asheville area alone is experience 4x growth.

Another factor for housing affordability continues to be supply of building materials. The NAHB is expecting these costs to stop rising and enter more of a stagnant “cooling off” area.

Lumber was such a focus by the NAHB, they admittedly missed that other materials would become issues as well. Lumber has been going down, and should be leveling off. They are pushing for more domestic lumber but that will take time. Current July price of lumber is $604 per thousand board feet.

The Construction outlook shows Remodeling fairing the best in the next 2 years, boosted by home equity gains.

Residential Remodeling growth Chart showing that remodeling is predicted to grow in the next 2 years
Residential Remodeling growth Chart

They are predicting new home prices to decline at least 5% as Home prices were rising at unsustainable pace: 37% gain for new home prices since Jan 2020. The decrease, should not be on the level of the 2008 great recession though. All of this will be a rest to the market.

As builder confidence is down, Single-Family Starts decline as interest rates increase. NAHB is predicting a drop in 2022 to 2023 and then a rebound in 2024 to move into 2025 for single family. Fortunately for our builders the Asheville and NC data is stronger.

Single family building permits in north carolina and asheville are up. with NC seeing a 13% increase in 2021
Single-Family Building Permits –North Carolina and Asheville graph

Rob and NAHB are predicting that during this recession custom building will fair better that the spec market. “Built to Rent” projects are on the rise, along with the townhouse and apartment markets.

The positive is that the next largest buying market Millennials is on its way. they want to own single family homes so the future for single family homes is bright. About 41% of young adults ages 25 to 34 were household heads in 2018.

During the Q&A Rob discussed some of the policies in Washington D.C. that are being considered for Home Affordability. Basically saying that the NAHB has been meeting with all types of congressional members from both party lines to explain what the builders need in regards to policy. The labor market was discussed as well.

Sustainability was also brought up with a lot of law makers leaning more to Green Building. Rob says we should all expect more focus on water land issues – such as flooding insurance, marshes, and clean water. Energy efficiency is strong with a focus now being brought to updating aging and existing stock, thus the rise in the remodeling market.

If you have more questions for Rob Dietz you can email him at: [email protected] . He also recommends staying on top of policy by reading: the Financial blog of NAHB. If you would like to see more of a local impact on labor shortage, or housing affordability reach out to our office to discuss how we can get you involved.

Click Here to Download the slide deck from this presentaion.