Why 2024 could mark an 'inflection point' for single-family starts
Single-family home construction in the US has endured a sluggish pace in recent years – but the outlook for 2024 looks decidedly more positive, according to a top economist, with a potential rebound on the way.
Robert Dietz (pictured), chief economist at the National Association of Home Builders (NAHB), told Mortgage Professional America that the year ahead could mark an “inflection point” for single-family starts, which the association projects to tick upward by between 5% and 6% following consecutive years of decline in 2022 and 2023.
That bullish outlook is mirrored in NAHB and Wells Fargo’s homebuilder sentiment indicator, the 0-to-100-scaled Housing Market Index (HMI), as builders begin to view the market with growing positivity as it emerges from a grueling year.
“[Sentiment] really got heart in the fall of last year when mortgage rates approached 8%,” Dietz said. “But for the last couple of months, it’s improved. It’s still below 50, but it’s increasing into the mid-40 range – and I think those gains are consistent with our forecasts, which is that the general feeling is we’re now past peak mortgage interest rates.”
Last week’s surprisingly strong jobs report, which saw the labor market shatter expectations by adding 353,000 jobs in January, could serve to push back the Federal Reserve’s potential timeline for cutting interest rates.
While Dietz said that report “all but rules out” a March rate cut, he believes lower mortgage rates, existing-home inventory shortages and supply-side challenges should all put upward pressure on demand – “setting up a year of rebound for starts on the single-family side.”
The US economy added 353,000 jobs in January, surging past market expectations as wages jumped and the unemployment rate held steady.https://t.co/OdIwbWYNgI#breakingnews #mortgageindustry #marketupdates #labormarket #economy
— Mortgage Professional America Magazine (@MPAMagazineUS) February 2, 2024
Multifamily market challenges expected to stretch into next year
The outlook for multifamily starts is somewhat less rosy, with NAHB expecting apartment construction to plummet by around 20% this year amid tight financing conditions and oversupply in certain markets.
Those financing difficulties have been raised by apartment developers for more than a year, Dietz said, with 2024 set to mark the point when they begin to materialize in the starts data.
Still, with the multifamily segment typically slower to rebound than its single-family counterpart, a recovery could begin to gather pace in good time – particularly if current labor market trends continue.
“As long as the labor market remains relatively positive in growth, that’s definitely a bullish indicator for apartment rental demand,” Dietz said. “The US market has in the last decade and a half shifted even more to build-for-rent in multifamily.
“And so that kind of entry-level job growth and ongoing low unemployment rates are good. Our forecast in multifamily is that stabilization will be reached as we get to the end of 2024 flat, maybe a slight gain during the second half of 2025 for multifamily starts.”
On the remodeling front, activity is currently flat – but it should also see improved numbers by 2025, thanks in large part to aging housing stock and the prospect of lower mortgage rates leading to more cash-out refinances.
“Overall, I think we’re looking at a positive year, and that’s what I’m hearing from builders on the road,” Dietz said.
What do the latest labor market figures mean for US home construction?
There are still clear employment gaps in the construction sector, with around 450,000 positions still unfilled, although January saw an uptick in the number of Americans employed in the space.
Construction job openings began to trend downward throughout 2022 and much of 2023, with Dietz noting a recent uptick as a sign that builders are readying for a busy period on the horizon.
“You think of [2022 and 2023] as a period of time where the construction industry was declining in terms of activity levels and the number of Help Wanted signs was coming down,” he said. “The overall count of those unfilled jobs was still quite elevated, near multi-decade highs. But it now appears it’s turning the corner.
“In fact, over the last couple of quarters, the number of open jobs in construction is rising again – that’s a forward signal that suggests hiring is continuing and what’s happening, particularly in the homebuilding sector, is an expectation that single-family home buildings are going to expand in 2024. Builders are looking down the road and saying, ‘OK, we’ve got to have our workers in place.’”
It’s worth noting that those positive indicators are arriving amidst a skilled labor shortage in construction, a challenge that Dietz said is unlikely to fade within the next five to 10 years.
“The watchwords here when I talk to builders are ‘recruit, train, and retain,’” he said. “We’ve got to bring workers into the sector, train them so their productivity is higher, and then we’ve got to keep them in the sector to build a career.
“Then, within a period of time and career advancement, those become the small businesses of the future.”
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