Despite Caveats, Market Gains Foreseen
Continued growth is being forecast for housing and remodeling in 2021, even amid warnings over a series of factors, including rising construction costs, that could hamstring market gains. 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
While housing starts ended 2020 on a strong note, rising lumber prices and increasing regulatory cost concerns could negatively impact future residential construction, the National Association of Home Builders warned last month. Housing starts in 2020 totaled 1.38 million units, up 7% over 2019 totals, according to U.S. government figures. Single-family starts totaled 991,000, up 11.7% from 2019, while multi-family starts declined 3.3%, to 389,000 units, the government reported. But while the NAHB is forecasting further gains in 2021, “the gains will be tempered by ongoing supply-side challenges related to material costs and delivery times, a dearth of buildable lots and regional labor shortages,” said Robert Dietz, chief economist for the Washington, DC-based NAHB. Dietz warned that while the demand-side of the housing sector remains robust, inventories are lean and builder confidence remains high, home price growth and rising construction costs threaten housing affordability in 2021.
Existing-home sales in 2020 reached their highest level since 2006, according to the National Association of Realtors, which reported a seasonally adjusted annual sales rate of 6.76 million in December 2020, up 22.2% from the rate of 5.53 million posted in December 2019. “For 2020 as a whole we saw sales perform at their highest levels since 2006, despite the pandemic,” said Lawrence Yun, chief economist for the Washington, DC-based NAR. Yun predicted “a continuation of the strong activity” currently being evidenced in the housing market and the overall economy. “Although mortgage rates are projected to increase, they will continue to hover near record lows at around 3%,” Yun said. “Moreover, expect economic conditions to improve with additional (economic) stimulus forthcoming and vaccine distribution already underway.”
Annual gains in spending for improvements and repairs to owner-occupied homes are expected to be “modestly higher” this year compared to 2020, according to the Leading Indicator of Remodeling Activity (LIRA), released last month by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projected an uptick in year-over-year growth of home renovation and repair expenditures from 3.5% at the close of 2020 to 3.8% by year-end 2021. “The remodeling market continues to benefit from a strong housing market, including accelerating growth in homebuilding, sales and home equity,” said Chris Herbert, managing director of the Cambridge, MA-based Joint Center for Housing Studies. “In addition to routine replacement-and-repair projects, homeowners are likely to pursue more and larger discretionary home improvements this year as the broader economy recovers.” The Joint Center projected the residential remodeling market to gain by roughly $4 billion, or 1%, to a level of $352 billion in 2021 (see related graph, above).