Although key challenges linger as 2023 enters the fourth quarter, headwinds in the nation’s new construction and remodeling sectors are expected to gradually subside in the months ahead, particularly if affordability conditions improve, industry 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
While home builders continue to face a series of affordability challenges, they remain “cautiously optimistic” about market conditions, according to the National Association of Home Builders. Low existing inventory that is keeping demand solid is helping boost builder confidence, the Washington, DC-based NAHB reported. “The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers,” said NAHB Chairman Alicia Huey. Although builders remain “cautiously optimistic” about market conditions, the recent rise in mortgage rates “is a stark reminder of the stop-and-start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” said NAHB Chief Economist Robert Dietz. Single-family housing starts are about 7.5% lower than a year ago, while the multifamily sector is off about 9%. New-home sales, in contrast, are up nearly 24% from a year ago, according to the latest figures.
While a full-blown housing recovery is not yet underway, “the housing recession is over,” according to the chief economist for the National Association of Realtors. NAR Chief Economist Lawrence Yun said that the presence of multiple offers on resales “implies that housing demand is not being satisfied due to lack of supply.” The first half of 2023 “was a downer,” with sales lower by 23%, but pent-up demand “will surely be realized soon,” Yun said. “With inflation coming close to the Federal Reserve’s desired conditions, mortgage rates look to have topped out,” Yun observed. “Given ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next.” The NAR said it expects existing-home sales to decrease 12.9% from 2022 to 2023, settling at 4.38 million units, before climbing 15.5%, to 5.06 million in 2024.
More professionals involved in home remodeling and design anticipate growth rather than declines in the third quarter of 2023, following slowed activity in the first half of the year, according to the Q3 2023 Houzz U.S. Renovation Barometer, a quarterly gauge that tracks residential renovation market expectations, project backlogs and recent activity in the construction sector and home improvement market. “Pent-up demand and macroeconomic conditions, such as aging housing stock and high mortgage rates, which continue to drive home improvement activity, are instilling a sense of optimism (as industry professionals look ahead),” said Marine Sargsyan, staff economist for the Palo Alto, CA-based Houzz. However, Sargsyan cautioned, ongoing labor shortages and product and material delays are expected to continue. Backlogs have lengthened across the construction sector to a record high of 13 weeks, 2.5 weeks longer than a year ago and more than double pre-pandemic levels in Q3 2019, according to Houzz.
Kitchen, Bath Spending Seen Off in 2023, ‘Strong’ for Long Term
BETHLEHEM, PA — Residential kitchen and bath spending is expected to decline 5%, to $179 billion, this year – below the record highs of 2022 but above pre-pandemic levels, according to a newly released forecast by the National Kitchen & Bath Association.
Despite this year’s expected decline, however, the long-term forecast for kitchen and bath remodeling “remains strong” – due primarily to an additional 2.2 million homes entering their prime remodeling years in the next five years, homeowners sitting on record levels of home equity, and repair-and-remodel projects being deferred beyond 2023, the NKBA said.
The NKBA recently released its 2023 Kitchen & Bath Market Outlook, revising the forecast made by the Bethlehem, PA-based trade association in January. The association’s forecast for repair-and-remodeling spending in 2023 is $68 billion, a decline of 8% from January’s forecast. New-construction kitchen and bath spending is forecast at $111 billion in 2023, a drop of 4% from the start of the year.
The projected repair-and-remodeling decline is due in large part to high inflation, which continues to erode excess household savings,” the NKBA said. “Higher interest rates have also made it less appealing to tap into home equity,” the association added, noting that “one bright spot is that higher-income households are less rate-sensitive and continue investing in luxury kitchen and bath remodels,” in the home.