Economists at the National Association of Home Builders (NAHB) covered all aspects of forecasting last week, during IBSx seminars, from residential to multi-family to remodeling. The news is good on all fronts, experts say, but not without challenges.

Remodeling

Residential remodeling recovered fully from the beginning of COVID-19, and spending on residential improvements will continue to grow at a healthy pace over the next two years.

“After the dip at the beginning of the pandemic, remodeler confidence bounced back, and it continues to remain at a high level, as remodeling spending is expected to reach $285 billion in 2021,” said Vince Butler, a remodeler from Clifton, Va. “There is steady consumer demand as Americans are at home much more during the pandemic. This gives homeowners more time and a desire to invest in their homes.”

NAHB estimates that real spending on home improvements will continue to increase in 2021 and 2022 throughout the COVID-19 pandemic.

“The biggest factors prohibiting stronger growth are mainly the volatile material prices and labor shortages,” said Paul Emrath Ph.D., NAHB’s assistant vice president for Surveys and Housing Policy Research.

Single-Family Housing

When addressing single-family housing, experts agree that this has been a bright spot throughout COVID-19. And while the home building industry is poised for another solid year in 2021, regulatory and supply-side challenges could harm housing affordability, slowing momentum and limiting growth.

“Housing affordability will continue to be a top concern this year,” said NAHB chief economist Robert Dietz. “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.”

On the plus side, housing is one of the few sectors experiencing year-over-year job gains, as the industry has hired more workers in the wake of the pandemic, but it still has not been enough to meet the increasing demand for housing, according to the NAHB. But the biggest short-term challenge facing builders, according to Dietz, is lumber prices.

“Pricing is now near the peak of mid-September and easily adding at least $16,000 to the cost of building a typical new single-family home,” he said.

Still, single-family starts hit a significant milestone in 2020—just under 1 million starts, 11% over the 2019 level. “The NAHB forecast is for ongoing gains for single-family construction in 2021, though at a slower growth rate than in 2020. Production is expected to rise an additional 5% to 1.03 million this year – marking the first year that total annual single-family production has exceeded 1 million since the Great Recession,” said NAHB officials.

Multifamily Housing

The news is not as good for multifamily housing, as rent growth slows and vacancy rates rise. However, the development market should stabilize by 2022. Multifamily starts are expected to fall 11% this year to 349,000 units from a projected total of 392,000 in 2020. The downturn will be short-lived, as multifamily production is expected to post modest gains in 2022, up 5% to 365,000 units, according to the NAHB.

“Single-family rents are up 3.5% over the last year, while rents on multifamily rental apartments are down 3%,” said Frank Nothaft, senior vice president and chief economist, CoreLogic.

“There are a lot of people who prefer to live in a single-family home rather than an apartment,” pointed out David Berson, senior vice president and chief economist, Nationwide Mutual Insurance Company. “With the pandemic, that only accentuates that demand.”