EYE ON THE ECONOMY
EXPECTATIONS for Rising Housing Headwinds in 2022 BY: ROBERT DIETZ
D
emand for new construction remains strong in 2022 because of demographic factors and an insufficient inventory of resale homes. One out of every three homes currently for sale is a new home, albeit at varying stages of construction. In fact, ready-to-occupy homes comprise only 9.7% of the listed, new-home inventory. And the portion of homes available for sale but not yet started construction has increased from 22.4% of new-home inventory in December 2020 to 25% in December 2021. However, mortgage interest rates will continue to move higher in 2022. The Federal Reserve clearly signaled that it will begin raising the short-term federal funds rate in March. NAHB is forecasting four rate hikes of 25 basis points each during 2022. Higher mortgage rates will price out additional prospective home buyers. As a result, the diminished state of housing affordability — now at a decade-low level of 54 on the NAHB/Wells Fargo Housing Opportunity Index — will move lower during the coming year, as both home prices and rates have increased. Moreover, construction costs will continue to increase in 2022. Residential material costs rose 21% year over year, while builders have grappled with historically volatile lumber prices — made worse by tariffs. And rising labor costs are causing the labor market to grow even tighter. There are more than 300,000 open construction sector jobs and the open job rate is trending higher. Consequently, according to a new NAHB survey, 91% of builders expect to face higher material costs this year, 90% expect ongoing material delivery delays and 85% expect ongoing challenges with the availability of skilled labor.
February 2022
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