High prices, bidding wars, short sale periods and lengthy searches were the norm in 2021’s housing market. But what can homeowners, homebuyers and home builders expect for the coming year?
The Dayton Business Journal sought the insights of National Home Builders Association (NAHB) Chief Economist Robert Dietz and Home Builders Association (HBA) of Dayton’s board president Erika Deady to look back at 2021 and peer into the housing market for 2022.
As an alternative to building or buying new, some residents have taken to renovating current homes or transforming older properties.
Deitz said increased home equity through home price gains and stock market gains have increased homeowner wealth. The aging housing stock, demand for aging in-place improvements and need for more space means the demand for remodeling is growing.
Dietz said he expects to see a 6% gain in the remodeling market for 2022.
While Deady said this method is taking place in the Dayton region, she thinks the home seller’s market is currently too good to pass up with people eager to receive top dollar for their homes without spending any money on updates or renovations, perpetuating the cycle.
Dietz said the housing market remains under built and requires additional labor, lots, lumber and building materials to add inventory.
An increase in cost of materials will continue to persist in 2022. Dietz said prices are about 19% higher year over year. While Dietz expects material challenges to ease slightly, continued delays in delivery have already expended construction times in 2021 between four and eight weeks on average.
However, Dietz said demand for housing will continue to be strong, even as affordability declines with higher interest rates.
Deady, also a sales coordinator at Oberer Homes, said the gap between available local homes and residents looking to buy won’t be closing anytime soon. Prior to the pandemic, she believes builders were unable to produce homes quick enough and now with extended building times, the gap will persist and potentially widen.
“With the existing home inventory still historically low, we will continue to see a high demand for new home construction,” Deady said.
Dietz said single-family homes built for rent, which had the best quarter on record during the Q3 2021, will continue to expand. In December, he said Dayton was on pace for more than a 20% single-family home construction gain in 2021.
New home size will also continue to trend higher with buyers and renters desiring more space with people using their homes for more purposes, including remote work which has taken off since the start of the pandemic.
With rising demand, the labor shortage in the construction industry is more prevalent than ever. Dietz said the construction sector is short 410,000 workers, per an NAHB analysis. He said the industry needs to add 740,000 workers per year to account for industry growth and retirements.
“Looking forward, the construction job openings rate is likely to see increased upward pressure as both the residential and non-residential construction sectors trend higher,” Dietz said. “Attracting skilled labor will remain a key objective for construction firms in the coming quarters and will become more challenging as the labor market strengthens and the unemployment rate declines.”
An additional challenge came to the housing industry alongside labor and material shortages in 2021. A recent NAHB survey showed 76% of builders reported the overall supply of developed lots in their area was low to very low, an all-time record since NAHB began collecting this data in the 1990s. The previous record was 65% in 2018.
Dietz said lack of skilled labor is looming over the housing industry. Although not a quick solution, HBA is working to tackle this issue long-term.
Deady said the HBA is focused on both national and local workforce development in the trade industries. In the Dayton area, the organization plans to continue to host local events and activities to provide exposure to the younger generation, getting them involved in and exposed to the building industry.
“The more exposure we can give these students to the trades and the building industry the better,” Deady said.
The NAHB advocacy team is fighting the tariffs on Canadian lumber, which are increasing the price of wood products. At their peak, higher lumber prices due to tariffs in early 2021 were adding more than $35,000 per single-family home in terms of construction cost. The U.S. received about 1/3 of its lumber from Canada, and the tariffs on lumber are set to double to 19%.
Additionally, regulatory costs make land development, apartment construction, and single-family construction more expensive and limits supply. For a typical single-family home, about a quarter of its final sales price is due to regulatory burdens, such an environmental rules or construction delays.
An NAHB study showed on average, regulations imposed by government at all levels account for $93,870 of the final price of a new single-family home for sale.
The NAHB is seeking to improve housing affordability against policy issues like these.