Just like any consumer or homeowner, builders and remodelers are trying to keep track and predict what is going to happen next in the homebuilding industry. The overall economic impact of the homebuilding industry is very significant at over 16% of GDP. Historically, the homebuilding segment has led us into economic recession/contraction which has also led us into economic recovery/expansion. This is very likely to be the case with this economic cycle. Our local New River Valley Homebuilders Association had the pleasure of hosting an Economic Forecast presentation from the economists at our National Association of Homebuilders a couple of weeks ago. Some takeaways to share...
What we know:
The pandemic has created a lot of chaos and uncertainty in our industry. From government shutdowns and department of labor requirements for operating during Covid to supply chain/material pricing and availability to record level industry labor shortages, and now the most aggressive interest rate tightening cycle in decades to combat inflation. The industry has and continues to face a lot of challenges due to Covid. Contrary to early predictions, the building and remodeling markets surged as the Covid restrictions eased. New single family home construction was up 13% each in 2020 and 2021. As interest rates increased, 2022 saw a drop-in single-family home construction by 11% nationally and in every state except for Montana (+.1%) and New Mexico (+33.5%). Remodeling saw similar growth of about 13% in each 2020 and 2021. Overall, the remodeling growth decrease to around 7% in 2022. Nationally we have an industry shortage of over 400,000 workers.
A summary of some material pricing changes since early 2020:
· Lumber prices are generally back to historical ranges of 300-$450/BF, down from a peak of over $1500/BF in mid-2021.
· Steel is up about 75%
· Aluminum, copper and gypsum (drywall) are all up about 43%
· Ready Mix Concrete is up about 28%
What we think will happen:
Of course, time will tell, but our industry economists are forecasting continued supply chain challenges in the future which does not fare well for material pricing and availability through 2024. We anticipate about a half point increase in Federal interest rate. Local banks 30-year mortgage plan rates will normalize at about 6% for a 30-year fixed rate mortgage in 2024. New home construction is anticipated to drop about 25% from 2022 to 2023 and to rebound around 22% in 2024 as rates (and news cycles) normalize. This should lead the country into an overall economic recovery. Remodeling growth is expected to continue to slow down to about 4-5% through 2024.
Longer term, 2025 through 2030, our population demographics yield a good outlook for home building growth and a reduction in our current housing shortage.
For builders and remodelers inside the industry, this news sounds pretty good as the cost wide swing seem to be narrowing. Generally, we seem to be working towards a solid and sustainable industry footing. Talking with several of our local builders and remodelers, we are seeing a continued demand for both new construction and remodeling services. We are seeing price sensitivity as our overall costs are fairly higher since the beginning of 2020. We don't however see any significant downward pricing adjustments coming in the near future, but prices are coming down steadily year to year. This could be as good a time as ever to embark on an investment in a new or existing home!
Written by Sean Beliveau
NRVHBA Board Member
Owner, Slate Creek Builders
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