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Single-family housing starts should experience gradual growth in 2024, and the new-home market should continue to experience market share gains relative to existing homes, economists from the NAHB, Zonda, and Realtor.com shared during “The Outlook: Housing Trends, Forecasts, & Insights for 2024” session at the 2024 International Builders’ Show.

Robert Dietz, chief economist for the NAHB, shared the organization’s forecast of 5% growth in single-family starts to 988,000 for 2024. Dietz projected single-family starts will surpass 1 million in 2025.

Zonda chief economist Ali Wolf forecast 3.5% growth for starts to around 980,000 units.

Both Dietz and Wolf agreed the multifamily market will lag in 2024, with starts expected to decline between 20% and 26%.

“We’re both taking a conservative approach [to single-family starts], mindful of the labor shortage [and] mindful that interest rates will likely prove to be more resilient on the high side,” Dietz said during the session.

In the existing-home market, Realtor.com chief economist Danielle Hale projected sales will increase marginally in 2024 to 4.1 million but will remain well below the 2022 levels of 5.03 million. A positive signal in the resale market is the return of inventory after a prolonged period of scarcity due to the rate lock-in effect. In January, Hale said active listings increased 7.9% on a year-over-year basis, while new listings increased 2.8%.

Macroeconomic Overview

On a macroeconomic level, Dietz highlighted that the economy in 2023 was more resilient that many projected heading into the year. The resiliency was a positive for housing demand, but it allowed rates to remain higher throughout the year.

“If you look at 2022 and 2023, without a doubt the housing market experienced a recession. Academics who designate when recessions begin and end will look back at 2022 and say some part of the year was a recession,” Dietz said. “They haven’t made that call yet because the unemployment rate has remained low.”

“We have seen the impact in the labor market of tight monetary policy. It hasn’t shown up in the unemployment rate, which is below 4%, but it [impacted] the job openings rate. Right now, the job openings rate is around 9 million; it has come down from its peak of 12 million. The cooling of the labor market is by design, it is what the Federal Reserve wants to accomplish, and it is good news because it is not occurring due to a rise in the unemployment rate,” Dietz continued.

After peaking near 9% in summer 2022, inflation has cooled and settled at 3.1%. While the rate is still above the Federal Reserve’s long-run target of 2%, it is a signal that the fight is progressing in the right direction. However, Dietz shared that housing costs continue to have an outsized contribution to inflation.

“Shelter inflation—rent and homeownership costs—are still rising at a 5.4% rate, and, for the past year, more than half of overall inflation in the economy has been shelter inflation,” Dietz said. “The only way to tame shelter inflation, and get overall inflation lower, is to build more housing.”

The economists on the panel shared projections that the Federal Reserve will likely begin to cut rates in the latter half of the year, which could put mortgage rates on an “uneven” downward path. Hale, Dietz, and Wolf projected rates would end 2024 under 7%, with an average for the year between 6.3% and 6.9%.

Outlook: New-Home Market

Data from the final month of 2023 characterized how the year was a tale of two housing markets: Existing-home sales ended the year at their lowest level since 1995, while new-home sales increased 12% on a year-over-year basis. Market dynamics, including the lock-in effect, have helped new-home sales grow to approximately 30% of the single-family market, well above its historical market share.

“All we learned throughout last year was that new homes had gained this dominant position in the housing market, and we anticipate that to carry on into 2024,” Wolf said. “We attribute this to three main things: inventory, incentives, and value gain. Existing homes keep getting older. We see more existing-home appreciation than new, [which] has narrowed the price spread between new and existing homes.”

According to Zonda’s survey of home builders, in February builders were able to offer buydown incentives with rates between the high 4s to high 5s, an advantage over the resale market. Additionally, buyers are increasingly favoring flex dollar incentives and closing cost incentives rather than buydowns, which were most popular over the past calendar year.

Zonda’s survey indicates over 80% of builders anticipate increasing starts in 2024 relative to last year. A majority, 51%, anticipate increasing starts by more than 10% compared with 2023, according to Wolf.

On the land strategy front, amid a shortage of buildable lots, 49% of builders are moving “full steam ahead” on land deals, while 46% are planning to move cautiously toward land. Forty-nine percent of builders reported land prices are moving higher compared with a few months ago, while 42% said prices have remained relatively flat.

“Affordability is a big issue, and we want to be building more homes. But, ultimately, depending on the market you are in, land prices represent between 20% and 50% of the final home price,” Wolf said. “There is the enthusiasm to build, but we do want to keep this in the back of our mind as one of the risks.”

Wolf said there is an opportunity for builders to market the advantages of new homes to prospective buyers. She noted the top answers buyers give in considering a new-home purchase are to avoid renovations, the ability to choose and customize design, and amenities.

“Those are things that need to be played up when communicating with consumers. Marketing needs to be playing these up as we think of that value equation [of new homes],” Wolf said. “It is incumbent on [builders] to continue to gain our share and retain our share of the total market.”

Outlook: Existing-Home Market

The resale housing market appears to be past “peak unaffordability,” according to Hale.

“The monthly mortgage rate for a median-priced active home listing reached a high of $2,405 in October 2023, which represents 29.1% of the share of a median family income,” Hale said. “In January, the payment amount was $2,101, or 26.8% of a median family income.”

However, while monthly payments are lower relative to October levels, payments are still up on a year-over-year basis and compared with pre-pandemic levels. Additionally, prices remain elevated and likely a contributing factor to lower sale levels seen in the existing-home market.

Hale highlighted how additional inventory is needed to address affordability. Even despite the year-over-year improvements to active listings and new listings, Realtor.com projects 2023 inventory levels were 36% below the 2017 to 2019 average for the resale market. Additionally, Hale said a 56% increase in inventory is needed to just return to the average level from 2017 to 2019.

“We are seeing some divergent trends depending on where you are. Many markets in the Northeast, Midwest, and [some in the] South have half or fewer homes for sale today and are looking at more scarce inventory relative to the national picture,” Hale said. “Markets in the South and West are a little more recovered; there are three that have recovered to pre-pandemic levels: San Antonio, Austin, and Dallas.”

Hale said finding low-priced inventory remains a challenge in the resale market, with a majority of listed homes priced above $600,000.

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