Interest rate hikes and inflationary pressures coupled with a lingering fear of recession continue to serve as obstacles to growth in housing and remodeling, although conditions are forecast to improve by 2024, market analysts say. 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
Limited existing-home inventory has placed a renewed emphasis on new construction and is resulting in gains in builder confidence, even as housing continues to face key challenges, including supply chain disruptions and tightening credit conditions for construction loans. Builder confidence in the market for newly built single-family homes has risen steadily in recent months, with new-home construction taking on an increased role in the marketplace “because many homeowners with loans well below current mortgage rates are electing to stay put, a trend that’s keeping the supply of existing homes at a very low level,” according to the National Association of Home Builders. “Lack of existing inventory continues to drive buyers to new construction,” said Robert Dietz, chief economist for the Washington, DC-based NAHB. “With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”
The Federal Reserve’s latest interest-rate hike was “unnecessary” and is hurting housing, according to the chief economist for the National Association of Realtors. Speaking at the recent 2023 Legislative Meeting of the realtors’ trade association in Washington, DC, NAR Chief Economist Lawrence Yun said he anticipates that the Fed will halt future interest-rates hikes, adding that inflation has already started to decline and will wind up at an annual rate close to 3% by year’s end. Yun said that while new-home sales are back to pre-pandemic levels, existing-home sales are “historically low,” and housing inventory is down 40% from 2019 levels. “The housing market is being held back by a lack of inventory, a problem that existed before the COVID-19 pandemic,” Yun said. “We need to get more inventory, and the long-term solution is more home building.” Yun forecasted that mortgage rates will fall closer to 6% this year and decline to below 6% in 2024. He added that he expects both new and existing-home sales to bottom out in 2023, before an upturn in 2024.
Signs are pointing toward “an imminent slowdown” in remodeling spending, as high interest rates, rising costs and economic uncertainty continue to challenge the industry, according to the latest Qualified Remodeler/John Burns U.S. Remodeler Index (USRI), a quarterly index that monitors conditions in the residential remodeling market. Available credit for remodeling projects is tighter due to stress in the banking system, while more customers are “hitting pause or downsizing ‘want’ projects in favor of continuing ‘need’ projects,” according to the USRI, the product of a joint venture between John Burns Research and Consulting LLC and Qualified Remodeler, a sister magazine of Kitchen & Bath Design News. At the same time, remodeling customers are requesting fewer project bids (and a) lower percentage of those bids are resulting in paid projects, the USRI found. Remodeling customers are also breaking up large remodels into smaller, bite-sized projects with lower price points, while project postponements are increasingly common, and customers are demanding lower-cost materials and products, researchers added. Despite these headwinds, surveyed remodelers expect 2023 revenue to increase 3%-5% on average, and most remain confident in their ability to handle project backlogs and continue raising prices.