Headwinds Seen Stunting Market Growth

by Autumn McGarr

Challenges are looming in the months ahead, as rising costs, supply chain delays and anticipated interest rate hikes counteract high remodeling and construction demand, housing experts 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

Ongoing building material supply side constraints, rising construction costs and expectations of higher interest rates continue to negatively affect builder sentiment, even as buyer demand remains relatively solid, the National Association of Home Builders reported. According to the Washington, DC-based trade association, the latest NAHB/Wells Fargo Housing Market Index posted its lowest future sales expectations in the monthly survey since June of 2020. “Builders are reporting growing concern that increasing construction costs and expected higher interest rates will price prospective home buyers out of the market,” said NAHB Chief Economist Robert Dietz. “While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and higher interest rates suggest caution for the second half of 2022.”

EXISTING-HOME SALES

Housing affordability “continues to be a major challenge” for existing-home sales, as buyers are “getting a double whammy: rising mortgage rates and sustained price increases,” the chief economist for the National Association of Realtors said last month. According to Lawrence Yun of the Washington, DC-based NAR, some buyers who had previously qualified at a lower mortgage rate are no longer able to buy at the current higher rate. “Monthly payments have risen 28% from one year ago and the market remains (glutted) with multiple offers still being recorded on most properties,” Yun said. Existing-home sales have exhibited a seesawing pattern of gains and declines in the early months of 2022, while total housing inventory, according to the latest figures, was down about 15% from the same time a year ago and the median sales price was up a similar amount. Yun forecasts mortgage rates to be about 4.5% to 5% for the remainder of the year and expects about a 7% reduction in home sales in 2022 compared to 2021.

RESIDENTIAL REMODELING

Expenditures for improvements to the nation’s owner-occupied housing stock are expected to increase at a faster pace in most of the largest metro areas this year, according to projections by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. Projections for 2022 reveal a “robust” average annual growth in home improvement spending of 13.8% across all 48 major metropolitan areas tracked, the Joint Center said. “Although home remodeling is expected to accelerate broadly across top metros, ongoing shortages and rising costs of labor and building materials may dampen activity in the coming year,” added Carlos Martín, project director of the Remodeling Futures Program.

CABINET & VANITY SALES

Sales of kitchen cabinets and bathroom vanities rose once again in February, following on the heels of reported strong growth through 2021 and in January of this year, the Kitchen Cabinet Manufacturers Association reported. According to the KCMA’s monthly Trend of Business Survey, participating cabinet manufacturers reported an increase in overall cabinet sales of 13.5% in February compared to the same month in 2021. Custom cabinet sales rose 19.4% over February of last year, while sales of semi-custom cabinets gained 5.4% and stock cabinet sales were up 18.1%, the Reston, VA-based KCMA said. ▪

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