Housing Market Continues on Growth Path
Housing continues to post signs of sustained growth, although contending with growing affordability issues, while residential remodeling continues to gain ground even in the face of the ongoing COVID-19 pandemic, according to the latest available market barometers. Among the key statistics and forecasts released in recent weeks by government agencies, research firms and industry-related trade associations were the following:
While the U.S. economy shrank by 3.5% in 2020, spending on home improvements and repairs grew more than 3%, to nearly $420 billion, as households modified living spaces for work, school and leisure in response to the COVID-19 pandemic, according to a major new report released in March by the Harvard Joint Center for Housing Studies. The report, Improving America’s Housing 2021, found that although many professional remodeling projects came to a halt when the pandemic hit, do-it-yourself renovations surged while the sudden flexibility of remote work also increased demand for larger homes and yards in lower-cost, less-dense areas of the country. While there are still large segments of the U.S. population that have not yet recovered from the steep economic recession caused by the pandemic, sustained growth in home remodeling is expected, according to the Harvard report. “In the short term, many homeowners who deferred projects in 2020 are expected to complete those renovations once the pandemic is over,” said Joint Center Chief Economist Kermit Baker. “Additionally, there has been an upturn in homeownership as younger households look to purchase homes, the number of multigenerational households has been growing, and remote work has given people more locational flexibility and the desire to modify their homes.” All these factors “have boosted the home improvement market and may become lasting trends that, in turn, fuel remodeling activity in the U.S. for years to come,” Baker said.
HOUSING STARTS & NEW-HOME SALES
Higher interest rates, supply shortages and rising material prices – particularly for lumber – are putting a damper on builder sentiment, housing production and new-home sales, the National Association of Home Builders reported. According to the latest available government data, sales of newly built, single-family homes declined sharply, to a 775,000 seasonally adjusted annual rate, the lowest level since May of 2020. Similarly, housing production weakened, declining to a seasonally adjusted annual rate of 1.42 million units, while builder sentiment was also trending lower, with both supply-side and demand-side factors diminishing housing affordability, the Washington, DC-based NAHB said.
Despite a recent decline in existing-home sales – attributable largely to historically low inventory – the current market for resales is still outperforming pre-pandemic levels and is expected to post gains over 2020, the chief economist for the National Association of Realtors said last month. Lawrence Yun, chief economist for the Washington, DC-based NAR, cautioned of a potential slowdown in existing-home sales in the coming months as higher prices and rising mortgage rates cut into home affordability, but predicted 2021 sales to outpace those of last year. “With more COVID-19 vaccinations being distributed and available to larger shares of the population, the nation is on the cusp of returning to a sense of normalcy,” Yun said. “Many Americans have been saving money and there’s a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy.” Existing-home sales, according to the latest available monthly figures, were running 9.1% over those of a year ago, at a seasonally adjusted annual pace of 5.7 million units.