NAHB: We Are in a Recession
Group’s chief economist forecasts GDP to have fallen in five of six quarters, through the second half of 2023.
The country is in a recession, the Federal Reserve’s actions cannot be “over exaggerated,” and the “Five Ls” continue to plague the housing industry, according to Robert Dietz, chief economist, National Association of Home Builders (NAHB).
Dietz shared those opinions and more during a session Tuesday in Atlanta at the National Association of Real Estate Editors annual conference.
“We had two negative quarters of GDP earlier this year, we’ll soon see a positive quarter in the Q3 report, but then we’ll have negative growth in Q4 and the first two quarters of 2023,” said Dietz, adding that the Fed has been moving interest rates two or three times faster than previous cycles.
“We assume that there should be one more rate hike in 2023 and then the Fed will pause it. That’s what they are [telling investors]. It won’t be until 2024 before we see rates fall.”
Homebuilder Sentiment Index on the Slide
In 2024 is also when Dietz expects NAHB’s National Homebuilder Sentiment Index to next improve.
“It’s fallen for nine straight months in 2022 and it’s going to fall again when we report it for October,” he said. “For the year, it’s down 14% — the first year it’s fallen since 2011. It should drop again in 2023 and not until the following year will it begin to recover.”
Dietz said the country’s housing shortage measures about 1.1 million homes. “Housing starts had been climbing and finally got to that level to meet demand, but then the Fed started making home-buying more expensive and things have [cooled],” he said.
Lending is one component of the “Five Ls” affecting the supply side, also including challenges from land, labor, lumber and legal (regulatory issues), he said.
On Rising Costs, Labor Market
Dietz said NAHB data show the overall cost for a “bucket” of key materials needed for homebuilding was trending “up 24%” year-over-year for several months. It has since fallen to about “up 16%” and Dietz said, because of a slowdown in construction due to rising costs, it should soon slip to single-digits and even ultimately crash to zero.
He said he hasn’t seen reports of job layoffs in construction yet – mostly because the multifamily construction business is so “hot” – but this could come soon. He said the industry’s greatest challenge will be hiring to replace those workers who are “aging out,” citing that the average construction worker is 41.
More Than One in 10 New Homes Being Rented
He said the single-family rental industry, or “horizontal multifamily” currently, roughly 5% to 6% of new single-family homes built are occupied by renters and 5% to 6% are bought by investors and converted to single-family rentals.
“Historically, this has been about 3% of the single-family home sector, but now it’s about one in 10 homes, and maybe more, and the number is forecast to increase.”
Other Data & Trend Highlights
- There are more homes being built today, combined, in Houston and Dallas, than in the entire state of California.
- The tear-down rate of single-family homes is currently at about 6%, but because more homes are aging, it is forecast to rise.
- Homeownership rates are expected to decline in the next year or so because people will be staying in their homes longer, because they have affordable mortgage rates and don’t want to sign up for new, higher mortgage rates.
- The renovation craze is being revived because people not only are staying in their homes longer, more now are working from home.