The following insights from Danushka Nanayakkara-Skillington (center) and Ali Wolf (right) are a fresh take inspired by an economic outlook session the two participated in at our Builder 100 event in September, moderated by Zonda’s Tim Sullivan.
Kathleen Clark Photography The following insights from Danushka Nanayakkara-Skillington (center) and Ali Wolf (right) are a fresh take inspired by an economic outlook session the two participated in at our Builder 100 event in September, moderated by Zonda’s Tim Sullivan.

We all know it’s really anybody’s guess as to what the future holds. However, Ali Wolf, Zonda’s chief economist, and Danushka Nanayakkara-Skillington, NAHB’s assistant vice president of forecasting and analysis, are in the business of anticipating what comes next. As a new year approaches, it seemed fitting to ask the two of them various questions—answered in a yes-or-no format (with the exception of a couple that had Wolf split)—on topics that pertain to the housing industry to get a sense of what to expect in the coming months.

We asked our forecasters to give us their top three reasons housing is booming right now, and one response was given by both: demographics. Wolf also points to the ability for many to work from home, in addition to low interest rates, while Nanayakkara-Skillington references the housing deficit and effects from the COVID-19 pandemic, which created a renewed interest in housing.

Will the boom continue, or will builders start to see business plateau? Read on to find out what topics need to be on your radar and which ones you can perhaps worry about a little less.


Q. Will there be a recession in 2022?

Wolf: No. Our base case is an economy that is growing at a decelerating pace compared with the rate we are used to over the past 18 months. There are risks though.
Nanayakkara-Skillington: No. We expect 3.9% GDP growth for 2022.

Q. Is inflation going to get worse?

Wolf: Yes and no, depending on the category. Some industries will see relief while others see continued rising prices. Wages and supply chain are the top things to watch.
Nanayakkara-Skillington: Yes, for a little while until supply-chain bottlenecks are sorted out but higher (2.7%) than the average we’ve been used to (1.8%).

Q. Will we continue to see upward pressure on wages?

Wolf: Yes. Early signs from pulling away the extended unemployment benefits are resulting in a slight increase in applications but not a full snapback. Workers have all of the power today with record-high quit rates and a small pool of alternative employees for employers. Bigger companies that are willing to offer higher wages and competitive benefits are making it difficult for other companies to avoid raising wages if they need workers.
Nanayakkara-Skillington: Yes, due to scarcity of labor (supply is less demand). We expect the unemployment rate to go down, productivity gains because of a hybrid work model, and broad-based inflation measures.

Q. Will interest rates be above 3.5% at the end of 2022?

Wolf: No. Our base case is that interest rates hit 3.5% at the end of the year, but we are tracking to see early signs of how the Fed tapering is received by investors and watching how inflation plays out to determine if we need to move our forecasts higher in the coming months.
Nanayakkara-Skillington: Yes. We are forecasting a little over 3.7%, which will increase affordability issues.

Wrap-Up → Top 3 Risks for the Economy

1. Stimulus cliff: The economy notably slowing in the absence of monetary and fiscal stimulus.
2. A misstep from the Fed: Policymakers are doing their best to navigate today’s environment, but we are living through unprecedented times.
3. Inflation: If higher prices stick with us longer than anticipated there will be wide-reaching impacts, including higher mortgage rates.
1. Virus surges (at the local level).
2. Labor shortages (and workers on the sidelines).
3. Housing affordability issues.


Q. Will the South continue to be an attractive migration area?

Wolf: Yes. Lifestyle meets relative affordability, lower taxes, warm weather, and employment opportunities.
Nanayakkara-Skillington: Yes. More than half of home building occurs in the South. Weather and retirement communities help with the attraction; however, the Midwest has a lot of potential as it’s an affordable region.

Q. Are demographic tailwinds all we need for a strong housing market?

Wolf: No. Affordability, consumer confidence, quality of homes available, savings, the labor market, rental alternatives, etc., all play into tenure choice.
Nanayakkara-Skillington: No. Demographics and housing deficit are the tailwinds for a strong housing market.

Q. Is the work-from-home trend here to stay?

Wolf: Yes. I think part-time work from home will be with us for years to come. Full-time work from home for the majority of those that can is less likely to stick.
Nanayakkara-Skillington: Yes, 20% to 40% of the workforce is able to do a hybrid work model.

Wrap-Up → Top 3 Markets for Growth in 2022

1. Markets in Texas because of the pent-up demand of migration.
2. Markets in the Carolinas because of lifestyle and employment opportunities.
3. Big cities like San Francisco, New York, Los Angeles, and Washington, D.C., because as vaccines get widely distributed and the world gets closer to normal, the inherent desirability of these areas for some remains.
1. Atlanta
2. Dallas
3. Tampa, Florida


Q. Do we have enough production capacity to hit 2 million housing starts?

Wolf: No. Labor is the main reason, ranging from staff at local municipalities to workers in development, construction, and building product manufacturers.
Nanayakkara-Skillington: No. We don’t due to lack of skilled labor, availability of lots, and higher cost of building materials.

Q. Is the ending of the forbearance period going to derail the housing market?

Wolf: No. Lenders have been working to restructure loans with those that have fallen behind on payments. Not every borrower will be in a place where that works for them, and some will end up in a place where they’ll lose their home, but the important thing to understand is how many loans in your area are delinquent and is your state judicial or nonjudicial. Those factors will help explain the local impact.
Nanayakkara-Skillington: No. We certainly expect an uptick in foreclosures, but there is a significant housing deficit (at least 1 million homes) so the market should be able to withstand it.

Q. Will the majority of supply chain challenges be gone in six months?

Wolf: No. The expectation is that we will see parts of the supply chain improve while others remain challenged on a rolling basis throughout 2022. Expect disruptions related to material availability and higher costs next year.
Nanayakkara-Skillington: No. Lumber prices have fallen, but overall building material prices have increased, up 22% during the past 12 months and up 19% year to date (including energy). There are also longer delivery times. Builders are reporting shortages of cabinets, appliances, windows, roofing materials, etc.

Wrap-Up → Top 3 Issues in Supply Side

1. Overall inventory of vacant developed lots in active areas is at the lowest level we’ve tracked.
2. Some of the land that has been purchased has been expensive, making it hard to do affordable housing.
3. Land where people want to live isn’t there.
1. Lack of skilled labor.
2. Availability of lots.
3. Higher building material prices. In July, the cost of lumber was adding $36,000 to a single-family home and $10,000 per apartment.


Q. Will we see double-digit price growth for next year?

Wolf: No. There are some forecasters calling for 10% to 12% home price growth in 2022 over 2021, but our base case is 5% nationally.
Nanayakkara-Skillington: No. We expect the market to stabilize and are forecasting 4% house price growth for 2022.

Q. Will we see lending standards loosen because of affordability?

Wolf: Yes and no. I don’t think we’ll see adjustments to loans that will be sold to Fannie Mae and Freddie Mac, but we already have started to see some creative solutions from private companies entering the market.
Nanayakkara-Skillington: No, but it also depends on who’s in office. With a Biden (or Democratic) administration, FHFA might make credit accessible to low-income households, but we don’t expect anything significant.

Q. Will we see a 40-year mortgage in the next five years?

Wolf: Yes. I don’t believe they will end up mainstream, but barring a price correction and assuming rising rates, I think this could be a card played to help with affordability.
Nanayakkara-Skillington: No. Freddie Mac and Fannie Mae are unlikely to get onboard with this idea.

Wrap-Up → Top 3 Ways to Improve Affordability

1. Take tried-and-true product in expensive coastal markets to more affordable parts of the U.S. dealing with wild home price appreciation.
2. Work with cities to find efficiencies.
3. Rightsizing with better indoor-outdoor connectivity.

Nanayakkara-Skillington: To improve affordability, we must increase housing supply:
1. Recruit and train workers for residential construction.
2. Improve zoning and land development approval processes to enable more lots and reduce impact/permit fees.
3. Improve the building material supply chain, including a new softwood lumber agreement with Canada.