The National Association of Home Builders anticipates single-family starts will slow this year, but having finished 2020 up 11% over the prior year to just under 1 million, the industry is still strong. In fact, NAHB predicts production will increase 5% to over 1 million, making it the first time annual single-family production will hit that milestone since the Great Recession.
However, affordability continues to plague buyers, with no end in sight. The effect of more COVID-19 vaccines on opening the economy could lead to even more housing demand and begin driving interest rates back up, according to NAHB.
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NAHB Chief Economist Robert Dietz spoke on a panel at IBSx, the 2021 virtual International Builders’ Show, on Wednesday, along with Frank Nothaft, senior vice president and chief economist at CoreLogic, and David Berson, senior vice president and chief economist at Nationwide Mutual Insurance Company.
“Housing affordability will continue to be a top concern this year,” Dietz said in a statement. “On the demand side of the housing market, limited inventories of single-family homes generated strong price gains in 2020. While supply-side pressures, such as resurgent lumber prices, a shortage of buildable lots, inconsistent access to building materials and a regional skilled labor deficit foreshadow higher costs and longer build times this year. A changing regulatory landscape threatens to further erode housing affordability and make the tight inventory environment worse.”
NAHB noted that housing is one of the few sectors that didn’t lose a glut of workers in the pandemic, enjoying year-over-year job gains. Low interest rates are pushing demand so high that even with those job gains, builders are struggling to create enough inventory. New home inventory is at 302,000 a 4.3-month supply, according to NAHB. Existing home supply is at just 1.9 months.
The lack of supply is pushing more would-be buyers to rental units.
“Single-family rents are up 3.5% over the last year, while rents on multifamily rental apartments are down 3%,” according to Nothaft.
Dietz believes that the built-for-rent market is due to expand as a result. “My expectation is that the single-family built-for-rent construction market share, which is currently around 4.5%, will likely grow to 5% to 6% over the next two to three years,” said Dietz.