With the Fed increasing rates, experts predict the market will continue to have slow growth.
By Aurielle Weiss
Just when you think the housing market can’t get any hotter, it continues to burn. This past year we saw the market grow at a rate no industry professional could have predicted. As the Federal Reserve increases interest rates to combat inflation and slow market growth, some are forecasting that the market may finally level off. However, I’m not so sure.
Real estate company Redfin said that January is “shaping up to be the most competitive month in housing history.” January continued to break records as median home sale price shot up to 16% annually in the week ending January 9, with a new record of $365,000. Just in the past month, 41% of listed homes sold for above their listing price, an 8% jump from last year.
“As the Federal Reserve increases interest rates to combat inflation and slow market growth, some are forecasting that the market may finally level off.”
Though the Fed has started to raise borrowing costs, the average rate on a 30-year fixed mortgage is 3.68%, many experts predict that hike won’t stop potential buyers from continuing to flood the market. Some say the rise will have the opposite effect, buyers will want to lock in their loan at the lowest rate before they rise again.
On The Building Front
Brad Hunter of Hunter Housing Economics predicts that some states will continue to see strong demand as many homebuyers are moving to states with lower taxes like Florida, Montana, Utah, Colorado, Texas, Georgia and the Carolinas. “The expensive high-tax areas are going to remain that way, and renewed pandemic or not, the population flows are happening,” Hunter said.
He also predicts that we will continue to have a boost in the demand for land as builders look to increase their community counts and lot supplies.
“On top of the land demand from the for-sale homebuilders, land brokers tell me they are fielding 50 calls from groups just now entering the BFR arena for every one “veteran” buyer, and the demand for land far outstrips the supply of suitable land for sale,” Hunter said.
Despite supply chain disruptions and the struggle of finding skilled laborers, the demand for new builds remains strong. According to the Global Sector PMI report from IHS Markit for December 2021, real estate finished the year as the fastest-growing sector beating finance, healthcare and manufacturing.
Our monthly column from Patrick Duffy, Principal with MetroIntelligence, highlights some factors that are likely to influence housing demand; falling affordability for buyers taking out mortgages, employers embracing permanent remote work and the extent to which both smaller and larger investors continue to compete with traditional buyers.
Duffy also acknowledges how the concern in the markets has led to this continued demand.
“Given the recent choppiness in the stock, bond and crypto markets and continued uncertainty in how the Federal Reserve intends to address stubbornly high inflation, investors are likely to continue putting more dollars towards income-producing investments with a reliable income stream such as single- and multi-family housing,” Duffy said.
The Event of The Year
The 2022 Kitchen & Bath Industry Show (KBIS) and the International Builders Show (IBS) are back! This is an event where the top industry professionals have a chance to promote their work, educate others on products and services and connect with one another.
After Covid cancelled last year’s in person show, industry professionals are itching to hit the show floor. In a column from Bill Darcy, Chief Executive Officer of the National Kitchen and Bath Association, he shares with us a preview of what the event has to offer. There are over 380,500 NSF and feature 450 exhibitors, including legacy brands.
“Together, we set the course for our industry. Trends are established. Products are launched. People are discovered. And businesses are fueled,” Darcy said.
Aurielle Weiss is Editor at Builder and Developer Magazine. She may be reached at [email protected].