Market Posts Gains in Face of Challenges

by Tracy Hegg

Robust demand is fueling continued growth in residential remodeling and housing, even as supply chain disruptions, inflation, limited inventory and labor shortages that limit the pace of construction remain significant challenges to more robust growth. 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

Low existing-home inventory and strong buyer demand “will keep housing moving forward,” even as builders continue to grapple with building material production bottlenecks and labor shortages, according to economists at February’s International Builders’ Show. “Building material costs are up 21% compared to a year ago,” said National Association of Home Builders Chief Economist Robert Dietz. “Their price and availability, along with persistent supply chain bottlenecks, remains the most urgent challenge as builders seek to meet rising demand.” Production disruptions “are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances,” noted NAHB Chairman Jerry Konter, adding that supply-chain bottlenecks contributed to housing affordability falling to a 10-year low in 2021. Nevertheless, overall housing production, boosted by strong multifamily growth, is expected to rise 2.5% in 2022, to a 1.63-million-unit annual pace, the NAHB said, adding that higher mortgage rates combined with rising construction costs “will increase affordability headwinds in the year ahead,” even as demand remains solid. 

EXISTING-HOME SALES

With inventory at an all-time low, home buyers “are still having a difficult time finding a home,” the National Association of Realtors said last month. According to Lawrence Yun, chief economist for the Washington, DC-based NAR, aside from persistent supply constraints, house hunters are contending with a number of additional market issues, including escalating home prices and rising interest rates. “Given the situation in the market, it would not be surprising to see a retreat in housing demand,” Yun said. The impending conclusion of the Federal Reserve’s asset purchase program is that it paves the way for higher interest rates, he added. “Russia’s aggression in Ukraine is also likely to affect global oil supply, imposing further burdens on inflation and bringing about more aggressive rate hikes.” Total housing inventory, according to the NAR, is down more than 16% from a year ago (1.03 million). “The inventory of homes on the market remains woefully depleted,” Yun said. “Clearly, more supply is needed.”

RESIDENTIAL REMODELING

The residential remodeling industry saw strong demand throughout 2021, despite supply chain problems and rising costs, according to experts at February’s International Builders’ Show in Orlando, FL. “Higher home equity and historically low interest rates provided resources for homeowners to improve their existing homes, helping to support the high demand for remodeling projects,” said Paul Emrath, assistant v.p./surveys and housing policy research for the National Association of Home Builders. “Despite delays and higher costs due to supply chain problems, demand for remodeling remains high,” Emrath said, forecasting continued growth in the remodeling market in 2022 and 2023, “although not as strong as 2021.”

CABINET & VANITY SALES

Following on the heels of a “very strong year” in 2021, sales of kitchen cabinets and bathroom vanities rose markedly in January, mirroring gains in both residential remodeling and new construction, the Kitchen Cabinet Manufacturers Association reported. According to the KCMA’s monthly Trend of Business Survey, released last month, participating cabinet manufacturers reported an increase in overall cabinet sales of 11.7% compared to January of 2021. Custom sales were up 19.7% over the same month last year, while sales of semi-custom cabinets rose 0.9% and stock cabinet sales gained 17.6%, the Reston, VA-based KCMA said.


MARKET ANALYSIS

Confidence High, Although Off 2021 Peak, Houzz Reports

PALO ALTO, CA — The confidence level among residential construction professionals is at its highest point since 2018, while confidence among architecture and design firms has risen and business activity remains high, despite a slight settling from its peak in early 2021.

Those are the key conclusions of the Q1 2022 Houzz Renovation Barometer, a quarterly survey that tracks residential renovation market expectations, project backlogs and recent activity among businesses in the construction and the architectural/design services sectors.

“Confidence among businesses in the residential construction and design industry has remained high since the initial shock of the pandemic and continues into 2022,” said Marine Sargsyan, senior economist for the Palo Alto, CA-based online platform for home renovation and design.

“Businesses are facing product and material shortages and price volatility, lack of labor availability, and fluctuations in interest rates (but) even with long wait times, businesses report no respite from pent-up demand, confirming long-standing market fundamentals,” Sargsyan said (see related story).

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