The B&D Interview: Brad Hunter, President, Hunter Housing Economics

Hunter shares his 2022 predictions.

Builder and Developer Magazine: After a frenzied year for the housing market, what do you project this year’s market to look like?

Brad Hunter: Slower price appreciation combined with high levels of demand. Demand will continue to be high due to the high rate of household formations nationwide. Rising mortgage rates and a cooling off of the FOMO effect (fear-of-missing-out) will throw some cold water on the recently-unsustainable rates of home price appreciation. Prices will still continue to rise in 2022, but at 7%-8% instead of 20%.

BD: What should we expect from the housing market this year? 

BH: Despite more pressure on affordability, my forecast calls for an increase in housing starts, particularly for single-family detached and townhomes. This reflects the recent surge in land purchases by the national homebuilders, who are planning to open many more communities this year. 

It also reflects my projection of a 20% increase in built-for-rent housing starts in 2022 (mostly to be detached homes, but a rising share of townhome and duplex units). The work-from-anywhere trend will continue to fuel demand in the more remote suburbs, particularly for families who need more bedrooms. I’m also watching for a polarization of product; by that I mean I expect to see increased demand for both larger units and smaller units, depending upon the location and the type of subdivision.

Rising mortgage rates will reinforce the demand for single-family rentals. I expect built-for-rent housing starts to rise from nearly 100,000 in 2021 to as many as 120,000 in 2022. This will include not only the traditional types of housing, but also “horizontal apartments,” referring to subdivisions of small detached and duplex units built on a single plat. They’re often marketed as “cottages.” We have done dozens of studies for this style of development, which is meeting the needs of the market extremely well.

There has been a lot of concern recently in the media about the billions of dollars flowing into build-for-rent, suggesting that too much of it is heading to market. My company’s research shows that supply is still chasing demand, and our quantitative forecasts suggest that even the current level of investment will not keep up with demand.

BD: What are your interest rate predictions?

BH: All things considered, I think we’re going to see the 30-year fixed mortgage rate go just past 3.6% in 2022, and will have a “4” handle in 2023. This will add to affordability problems, but along with this will come a much slower rate of home price appreciation and increased demand for rentals. Sometimes there is a surge in purchase demand as soon as rates begin to rise as people rush to lock in a low rate, but that usually is a pull-forward effect, borrowing from demand that would have occurred the year after; I don’t foresee that effect being very pronounced in this next leg of the cycle.

“The more significant issue in 2022 will be land and lot availability and lot prices. The ‘land rush’ is on, and it will only intensify as we go further into the year.” -Brad Hunter, President, Hunter Housing Economics

BD: Give us your thoughts on the current state of inflation.

BH: Inflation is rising, which creates a difficult situation for the Fed. Inflation has a lot of effects on housing, ranging from higher nominal home prices to more upward pressure on nominal interest rates.

BD: Talk to us about labor shortages; growth or decline?

BH: The labor shortage situation will remain a problem for builders this year, but may feel a little less severe. The more significant issue in 2022 will be land and lot availability and lot prices. The “land rush” is on, and it will only intensify as we go further into the year.