While the impacts of COVID-19 have worked to “cool off” the new homes market, analysts at the National Association of Home Builders (NAHB) predict total housing starts for the single-family market are expected to continue growing, albeit at more modest patterns. The association predicts an increase from around 1,099,000 units in 2021 to 1,110,000 in 2022, then 1,113,000 in 2023. A full housing and economist forecast appears in [DWM]’s January-February issue. Look for that in the next few weeks.

New housing growth aside, complications for buyers include the expectation for higher interest rates. Pointing to elevated inflation data, the Federal Reserve revealed in December that it plans to instate policy changes that forego many of the supporting measures put in place amid the pandemic, noting supply-demand imbalances that contribute to “elevated levels of inflation.” In November, consumer prices increased by 6.8% from the year prior, marking the largest year-over-year gain since June 1982. As a result, the Federal Reserve increased its estimate for 2021 inflation (under the core personal consumption expenditures measure) from 3.7% to 4.4%. At the same time, the projection for inflation in 2022 increased from 2.3% to 2.7%.

While the Federal Reserve has so far supported the housing market amid the pandemic, via such things as $40 billion per month in mortgage-backed security (MBS) purchases, beginning in November it began reducing the monthly volume of such purchases by $5 billion a month. Purchases of treasuries are also expected to be reduced by $10 billion a month. Both actions are expected to put upward pressure on interest rates in 2022, when the average 30-year fixed-rate mortgage is expected to reach 3.5%. In 2020 it averaged 3.1%.

Those predictions might sound grim, but the fact is, according to Freddie Mac’s Economic and Housing Research Forecast, as the U.S economy reached above its pre-pandemic peak with real GDP growth of more than 6% annualized rate in the first two quarters of 2021, experts agreed the economy still had space to grow. So far as construction and home sales are concerned, the mere threat of rising interest rates could also have a stimulating effect, helping to keep the housing market hot for another year.

“Barring any big surge in a variant that would make the [Federal Reserve] change course, a strong jobs market that’s outpacing the unemployment rate and inflation that’s more widespread and spilling over into more areas … the bottom line is, because of the expectation that mortgage rates will rise, I think people will continue to try to lock in rates in 2022,” says Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR). “I don’t really see even with mortgage rates rising that we’ll see a decline in demands for housing.” On the contrary, we should expect to see a brief rush before rates start to go up, as people jump into the market, says Kim Kennedy, director of forecasting for Dodge Data and Analytics.

As Omicron spikes in the early part of the year, by now one thing is clear: While demand for building products is expected to remain in step with housing, we’re facing another year of uncertainty, Kennedy says.

“The uncertainty brought about by COVID-19, and now the expanding variants, is still going to be there and I think that’s still going to cause uncertainty for builders and buyers,” she says. “We’re hoping that by late in 2022 things are settling down and we’re returning to our new normal. But it’s still going to be an unsettling year.” At the same time, just as they did in 2020 and 2021, “People will find a way to achieve their own personal American dream,” she adds, driving demand for new homes, remodeling and, as a result, doors and windows.

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