Next year is poised to be a "rough" one for the U.S. housing market due to a shortage of homes for first-time buyers and elevated construction costs, according to an industry expert.
Jerry Howard, the CEO of the National Association of Home Builders (NAHB), discussed some issues and predictions for the housing market during an interview on Fox Business on Monday. He said that things are currently going "very well" for high-end housing since "people who have money have money, whether it costs more to get a mortgage or not."
However, things are not going quite so well in regard to housing for first-time homebuyers, Howard said.
"First-time homebuyer housing is almost impossible to build right now. And so there is a real shortage of that in the market," Howard added. "And unfortunately, it's the first-time homebuyer component of the market, which really sets the overall housing market...We're looking at a rough year coming up."
The housing market has been under scrutiny in recent months in light of elevated prices, high mortgage rates and soaring inflation. Experts have offered differing projections on whether the market is at risk of crashing, or will only undergo a correction with less severe price declines.
While many recent discussions on the state of the housing market have focused on how these issues may impact buyers, Howard shed light on how those responsible for building homes are being affected.
When asked if conditions would get rougher before they turn a corner, Howard said that they would. He reiterated that 2023 was not looking like it would be a good year, saying that he has been talking to builders across the country. About 35 percent of builders started to lower their prices last month, "but there's only so far they can lower them," Howard added.
He also said that increases in construction costs have seen an uptick alongside general inflation in the country. CBRE, a real estate services and investment firm, forecasted in its Construction Cost Index over the summer that construction prices would see a 14.1 percent increase by the end of 2022 because of rising labor and material costs.
In comparison, year-over-year inflation in the U.S. hit 7.1 percent in November, according to a report released last week by the Bureau of Labor Statistics (BLS). This was a decrease from the 7.7 percent annualized rate in October, and much lower than CBRE's projected construction cost increase for 2022.
"Builders are in a quandary right now," Howard said. "A lot of the smaller builders are starting to take on remodeling and renovation contracts just so they can keep their businesses going."
Meanwhile, in a positive sign for the market, Cristian deRitis, deputy chief economist at Moody's Analytics, told Newsweek on Monday that some elevated construction costs have been trending downward after a period of volatility. The global construction consultancy firm Linesight released a report in early November showing that in the third quarter of 2022, prices for some key commodities like lumber, steel and copper had eased, flattened or stabilized.
Prices for some of these commodities have not come back down all the way, "but they're certainly off their peaks," deRitis told Newsweek.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Zoe Strozewski is a Newsweek reporter based in New Jersey. Her focus is reporting on U.S. and global politics. Zoe ... Read more
