Affordability Will Remain a Challenge for Homebuyers in 2022
Washington, DC, February 9, 2022-Low existing home inventory and strong buyer demand will keep housing moving forward in 2022, even as builders continue to grapple with ongoing building material production bottlenecks and labor shortages that will limit the pace of construction and keep upward pressure on home prices, according to economists speaking at the 2022 International Builders’ Show in Orlando, and reported by the National Association of Home Builders (NAHB).
“Building material costs are up 21% compared to a year ago,” said NAHB chief economist Robert Dietz. “Their price and availability, along with persistent supply chain bottlenecks, remains the most urgent challenge for builders as they seek to boost production to meet rising demand.”
Meanwhile, builders are contending with persistent labor shortages, with the government reporting more than 300,000 job openings in the construction industry in December. NAHB estimates that the residential construction sector will need to add 740,000 workers a year just to keep pace with the industry’s growth, retirements and departures.
On the interest rate front, inflation is running well above the Federal Reserve’s 2% target rate and the Fed has signaled it will begin tightening monetary policy in March, generating upward pressure on mortgage rates. NAHB anticipates the Fed will conduct four 25-basis point federal funds rate increases in 2022 and that the average 30-year fixed rate mortgage will top 4% by the end of 2022.
“Higher mortgage rates combined with rising construction costs and a lack of construction workers will increase affordability headwinds in the year ahead,” said Dietz.
Given these market challenges, NAHB is anticipating modest single-family construction growth in the year ahead. Single-family starts are expected to increase 1.0% in 2022 to 1.13 million units and edge 1% lower in 2023 to a 1.12 million rate. “While single-family growth slows in 2022 and 2023 and returns to a long-term trend, production will still be 26% higher than in 2019,” Dietz said.
Multifamily starts, fueled by low vacancies and rising rents, are anticipated to rise 6.3% from 2021 to about 496,000 units.
Boosted by stronger multifamily growth, overall housing production is expected to rise 2.5% this year to a 1.63 million annual pace.
Sales of new single-family homes are projected to total 830,000 in 2022, up 9.3% from last year.
Meanwhile, residential remodeling activity is expected to increase 6% in 2022 following a growth rate of 10% in 2021 as people continue to use their home for more purposes such as offices, schools and gyms. The surge in home equity has enabled more homeowners to finance remodeling projects that meet their needs.