Market posts gains amid challenges

Robust demand is driving continued growth in home conversion and construction, although supply chain disruptions, inflation, limited inventories and labor shortages limiting the pace of construction remain significant challenges to more robust growth. Key statistics and forecasts released by government agencies, research firms and industry-related trade associations over the past few weeks included the following:

APARTMENT START & NEW HOUSE SALES

According to economists at the International Builders’ Show in February, low stocks of existing homes and strong buyer demand “will continue to drive home construction,” even as homebuilders continue to struggle with shortages in building materials production and labor shortages. “Building material costs are up 21% from a year ago,” said the National Association of Home Builders’ chief economist Robert Dietz. “Their price and availability, along with ongoing supply chain shortages, remain the most pressing challenge as builders try to meet rising demand.” Production disruptions “are so severe that many builders wait months waiting to close cabinets, garage doors, countertops and appliances received,” noted Jerry Konter, chairman of the NAHB, adding that supply chain bottlenecks had helped housing affordability fall to a 10-year low in 2021. Still, overall housing production, buoyed by strong multifamily housing growth, is expected to rise 2.5% in 2022 to an annual pace of 1.63 million units, the NAHB said, adding that higher mortgage rates in Coupled with rising construction costs “will increase affordability headwinds in the coming year” even if demand remains solid.

EXISTING HOME SALES

With inventories at an all-time low, homebuyers are “still struggling to find a home,” the National Association of Realtors said last month. According to Lawrence Yun, chief economist at Washington, DC-based NAR, in addition to ongoing supply shortages, home seekers are grappling with a number of other market issues, including escalating home prices and rising interest rates. “Given the situation in the market, it would not be surprising if housing demand declined,” Yun said. The upcoming completion of the Federal Reserve’s asset purchase program means it paves the way for higher interest rates, he added. “Russia’s aggression in Ukraine is also likely to affect global oil supplies, further weighing on inflation and prompting more aggressive rate hikes.” Total housing stock is down more than 16% from a year earlier (1.03 million), according to NAR. “The stock of houses in the market is still exhausted,” Yun said. “More supply is clearly needed.”

RESIDENTIAL RECONSTRUCTION

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

CABINET & VANITY SALES

After a “very strong year” in 2021, sales of kitchen cabinets and bathroom furniture rose significantly in January, reflecting gains in both home conversions and new construction, the Kitchen Cabinet Manufacturers Association reported. According to KCMA’s monthly Trend of Business Survey, released last month, participating cabinet manufacturers reported an 11.7% increase in total cabinet sales compared to January 2021 – custom cabinets increased 0.9% and storage cabinet sales were up 17.6%, said Reston, VA-based KCMA.


MARKET ANALYSIS

PALO ALTO, CA — Confidence levels among homebuilders are at their highest since 2018, while confidence among architecture and design firms has risen and business activity remains buoyant despite moderating slightly from its early 2021 peak.

These are the key conclusions of the Q1 2022 Houzz Renovation Barometer, a quarterly survey that tracks market expectations for home renovations, project backlogs, and recent activity by companies in the construction and architecture/design services industries.

“Business confidence in the homebuilders and design industry has remained high since the initial shock of the pandemic and will continue into 2022,” said Marine Sargsyan, senior economist for the Palo Alto, California-based online home renovation and design platform .

“Businesses face product and material shortages and price volatility, unavailable labor and swings in interest rates, (but) even with long waits, businesses are not reporting a break from pent-up demand, confirming long-standing market fundamentals,” Sargsyan said (see related story).

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