The ongoing housing recession is expected to continue through the first half of this year, although signs are increasingly pointing to a second-half 2023 turnaround and an even-more-robust rebound in 2024. Among the key statistics and forecasts released in recent weeks by government agencies, research firms and industry-related trade associations were the following:
HOUSING STARTS & NEW-HOME SALES
The housing recession that began in 2022 will continue this year, as elevated inflation and mortgage rates coupled with stubbornly high building material construction costs and building material supply chain bottlenecks continue to take a toll on new construction and home sales, according to the latest forecast by the National Association of Home Builders. However, the second half of 2023 “could lead to a turning point for housing and the economy,” the NAHB predicted last month. “With interest rates projected to normalize in the second half of 2023 as the Federal Reserve taps the brakes in its fight against inflation, the pace of single-family construction will bottom out and begin to improve in the latter part of the year (and) this forward momentum will lead to a calendar year gain for single-family starts in 2024,” said Robert Dietz, chief economist for the Washington, DC-based NAHB, noting that housing affordability now stands at its lowest level since the trade association began tracking it on a consistent basis in 2012. While home prices are declining in many markets, that trend has not been enough to boost housing demand, Dietz observed. The NAHB is projecting that single-family production will fall to 744,000 units this year, before rebounding to a 925,000-unit annual pace in 2024. A structural housing deficit of 1.5 million residences, favorable home buyer demographics, and a better interest-rate environment will lead to “a solid period” for home building during the back half of the decade, the NAHB predicted.
Despite an improving interest-rate environment and ongoing job gains, the National Association of Realtors expects annual existing-home sales to decline 11.1% in 2023, to a total of 4.47 million units, before jumping 17.7% in 2024, to 5.26 million units. “Home sales activity looks to be bottoming out in the first quarter of this year, before incremental improvements will occur,” said Lawrence Yun, chief economist for the NAR, adding that an annual gain in home sales will not occur until 2024. Home prices will be steady in most parts of the country, with only a minor change in the national median home price, Yun observed, noting that existing-home sales fell for the twelfth consecutive month in January but are bottoming out. “Inventory remains low, but buyers are beginning to have better negotiating power,” Yun said. “The new normal for mortgage rates will likely be in the 5.5% to 6.5% range…and job gains will steadily become important in driving local home-sales markets,” he added.
After several years of double-digit gains, expenditures for improvements and repairs to the owner-occupied housing stock are expected to grow only modestly in 2023, according to the Leading Indicator of Remodeling Activity (LIRA), released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projected a steep deceleration in annual gains of home renovation and maintenance spending, from 16.3% at the close of 2022 to just 2.6% by year-end 2023. “Slowdowns in existing-home sales, house price appreciation, and mortgage refinancing activity coupled with growing concerns for a broader economic recession will cool home remodeling activity this year,” said Carlos Martín, project director of the Remodeling Futures Program at the Cambridge, MA-based Joint Center. “Homeowners are likely to pull back on high-end discretionary projects and instead focus their spending on necessary replacements and smaller projects in the immediate future,” Martin added. But although the pace of expenditures is expected to slow this year, the Joint Center raised its projection for the remodeling market’s size by about $45 billion, or 10.2%, to a record $485 billion.
‘Favorable Outlook,’ Slower Growth Seen for Remodeling
PALO ALTO, CA — Companies across all sectors of the residential remodeling market have a confident outlook for the next 12 months, with at least half of those surveyed anticipating that 2023 will be “good” or “very good.”
But while businesses expect demand for their services to increase, the rate of growth will be slower than that of 2022, which was off compared to the four-year high reported in 2021.
Those are among the key conclusions of the 2023 Houzz U.S. State of the Industry report, released by Houzz Inc., the Palo Alto, CA-based online platform for home renovation and design. The report, which provides an outlook of 2023 and a review of 2022 performance for residential renovation and design businesses, was based on data reported by more than 2,000 professionals in the Houzz community, according to the company.
“The home renovation and design industry experienced remarkable growth in recent years; however, that growth rate is unlikely to continue in the current economy,” said Houzz staff economist Marine Sargsyan, adding that Houzz’s latest surveys reflect “tempered optimism among professionals.”
This year, businesses across all industry sectors are anticipating the slowest revenue growth of 0.3% to 6.1%, since 2018 (6.9% to 12.3%), Houzz said, adding that revenue growth in 2022 did not meet expectations, likely due to the unusually high performance the year prior.