Economic Outlook: Single-family will continue ongoing growth, but at a slower pace

Housing growth will continue for the next several years, but at lower growth rates than we saw last year, according to NAHB Chief Economist Robert Dietz during a press conference at the International Builders’ Show virtual experience on Feb. 9.

Frank Nothaft, chief economist at CoreLogic and David Berson, chief economist at Nationwide, joined Dietz to take a closer look at the single-family economic outlook for the coming years.

Growth Projections

Single-family starts have choppy growth ahead, with a projected 11 percent growth in 2020, 5 percent in 2021 and 3 percent in 2022. In fact, 2021 will be the first year to top 1 million single-family starts, he says.

Residential remodeling growth will continue as people use their homes for more purposes, with projected gains of 4 percent in 2021 and 2 percent in 2022. Nothaft expects “record level” home improvement spending, especially because the average home gained $5,300 in home equity last year. Most of that figure, he says, is around home value gains.

Dietz also predicts multifamily construction will stabilize heading into 2022.

Headwinds

Housing growth is up against several headwinds, according to Dietz. In 2012, housing affordability was at 80 percent; now it’s down to about 58 percent. Lumber prices top the list of most pressing issues for builders, with lumber up 169% since mid-April 2020. Dietz estimates lumber prices alone add about $16,000 to the cost of building a new house.

Almost all (96 percent) of surveyed builders indicated supply shortages and delays in obtaining building materials as the top pandemic-related challenge, followed by local jurisdictions having trouble processing approvals (78 percent) and difficulty in finding workers and subcontractors willing to report to construction sites (76 percent).

Dietz also predicts that labor “will emerge as a top policy issue, particularly on the regulatory side, as we go through the next two years.”

Supply and Demand

Berson discussed the supply and demand of housing. The second quarter of 2020 saw the biggest one-quarter drop in real GDP, followed in quarter three with the biggest single quarter increase. It is, however, still below where it was.

Yet demand factors for housing remain as what Berson calls “very strong” driven by low mortgage rates, demand among 25- to 40-year-olds and demand for more space within a home, especially as more people start working remotely and want dedicated office space.

Most of the housing market is existing home sales, where supply fell short amid COVID as home sellers didn’t want people in their homes. The number of existing homes for sale is the lowest it’s been in its history of being tracked since the early 1980s.

That strong demand and low supply, he says, fueled an increase in home prices.

Berson predicts 2021 will have the strongest GDP growth since 1984, especially as vaccines are more widely distributed, perhaps in the second half of this year. He anticipates builders will build more homes this year and existing home sales will rise as sellers are less concerned about people coming into their homes.

“More supply won’t reduce the demand for housing,” he says. “We’ll have more sales this year than last year and a more even distribution between new and existing.”