Single-Family Residential Market Faces New Challenges Ahead in 2022
New home production and total sales volume will be slightly ahead of 2021, according to RCLCO Real Estate Consulting, but progress throughout the new year will still be accompanied by a fair share of challenges and wildcards. December 2021 saw a month-over-month increase in permits, starts, and completions, indicating a year of strong building ahead. Home prices are still growing, but at a significantly slower pace than in 2021.
Demand will remain strong in 2022, driven by economic recovery, strong existing home price appreciation, historically low interest rates, changing demographics, and a post-pandemic desire for additional living space. Both the residential construction industry and the U.S. government are focused on resolving a heavily disrupted supply chain, which will gradually resolve throughout 2022 and into early 2023, alleviating some yearlong obstacles for builders.
The other wild card, of course, is COVID-19. The Omicron variant seems to be less severe with lower associated hospitalization rates relative to Delta, so while we all need to continue taking steps to keep ourselves and others safe, we may be getting closer to the end of the crisis stage. Of course, the virus has surprised us before, and another variant could pop up to change all this. Stay tuned.
With all of this as context, builders remain optimistic with overall homebuilder sentiment, as measured by the NAHB Housing Market Index, at similar levels compared to early 2021 (although below the peak optimism of late 2020). Although supply constraints have been frustrating, builders understand that continuing low housing inventories and strong demand will continue to drive the industry forward throughout 2022. Nonetheless, supply chain problems remain a drag on the pace of new construction. Labor shortages persist as well, with many open positions going unfilled, creating further headwinds for the housing industry.