Inflation, Other Headwinds Taking Toll

by Tracy Hegg

Rising interest rates, supply chain disruptions and related headwinds are taking an increasing toll on the strength of the housing market despite continued robust demand. 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

Worsening affordability stemming from continued supply chain disruptions and rising mortgage rates “are slowing new home sales and taking a toll on the housing market,” the National Association of Home Builders reported. “Builders continue to face escalating construction and development costs, which are putting upward pressure on new-home prices,” said NAHB Chairman Jerry Konter, noting that the median sales price of new homes was reported up more than 21% compared to a year ago, due primarily to higher development costs, including materials. The latest builder surveys reveal that confidence in the single-family market has declined in recent months, “and this is a sign that single-family production will face challenges moving forward,” observed NAHB Chief Economist Robert Dietz.

RESIDENTIAL REMODELING

Expenditures for improvements and repairs to the nation’s owner-occupied housing stock are expected to increase throughout 2022 and into early next year, but at a decelerating pace in the face of rising costs and growing concerns about an economic slowdown, according to the Leading Indicator Remodeling Activity. The latest LIRA, released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, projects that year-over-year gains in residential renovation and maintenance spending will peak at 19.7% in the third quarter of 2022 before sliding to 15.1% in the first quarter of 2023. Annual expenditures for home improvements and repairs, despite the current headwinds, is projected to expand to nearly $450 billion by the first quarter of 2023 (see related story, below, and graph, above).

EXISTING-HOME SALES

The market for resales is beginning to feel the impact of sharply rising mortgage rates and higher inflation, according to the National Association of Realtors, whose chief economist, Lawrence Yun, predicted that transactions would contract by 10% this year. According to the Washington, DC-based NAR, the resale market has witnessed more than 120 consecutive months of year-over-year price gains, the longest-running streak on record. The median existing-home price is up about 15% from a year ago, with prices rising in each region, the NAR added. 

APPLIANCE SHIPMENTS

With supply chain delays and other headwinds taking a toll, domestic shipments of major home appliances fell slightly in the first quarter of 2022 compared to the same period a year ago, the Association of Home Appliance Manufacturers reported. According to the Washington, DC-based AHAM, major appliance shipments totaled 22.25 million units in the first three months of 2022, down 1.7% from the 22.64 million units that shipped during the same three-month period in 2021. First-quarter declines were posted in most key product categories, including home laundry equipment (-9.0%), food preservation (-2.7%), and kitchen cleanup (-2.3%), AHAM reported. In contrast, cooking appliance shipments posted a modest 1.4% gain for the quarter, while home comfort products shipments rose 5.9%, the trade association said.


MARKET ANALYSIS

Outlook Softening in Face of Inflation, Other Headwinds

PALO, ALTO, CA — While architecture and design professionals remain confident about business prospects, their outlook has “softened slightly,” with expectations declining somewhat for project inquiries and new committed projects, and backlogs reaching upward of three months.

That’s the key conclusion of the Q2 2022 Houzz Renovation Barometer, a quarterly gauge of residential renovation market expectations, project backlogs and recent activity among U.S. businesses in the construction, architectural and design services sectors. The findings were based on a recent survey of more than 1,000 home improvement firms on Houzz, which also reported home renovation activity and spending have reached the highest rates reported since 2018.

“While business activity and the confidence in demand for construction and design services has been the strongest that we’ve seen in the last four quarters, industry professionals are cautious about expected Q2 performance,” said Marine Sargsyan, staff economist for the Palo Alto, CA-based online platform for home remodeling products and services.

“Pros anticipate some impact on project inquiries due to inflation, supply chain delays and rising costs for materials,” Sargsyan said, adding, however, that “lengthy backlogs persist…signaling continued home renovation and design activity.”

Backlogs continue to grow across the industry, with the time before pros can begin work on a new, mid-sized project lengthening further across the country, according to Houzz, noting that wait times are the longest when compared to the start of any year since 2018.

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