Building material prices, production bottlenecks, and labor shortages will continue to dampen the pace of construction and affect home prices this year, economists told a crowd at the 2022 International Builders’ Show in Orlando.
Building material costs have surged 21% compared to a year ago. Further, more than 300,000 job openings went unfilled in the construction industry in December 2021. The National Association of Home Builders estimates that the residential construction sector will need to add 740,000 workers a year to keep pace with the industry’s growth, retirements, and departures.
Compounding matters further, inflation and interest rates both are on the rise. Economists predict the 30-year fixed-rate mortgage will edge closer to 4% by the end of the year.
“Higher mortgage rates combined with rising construction costs and a lack of construction workers will increase affordability headwinds in the year ahead,” said Robert Dietz, chief economist of the National Association of Home Builders.
As such, NAHB is predicting modest single-family growth in 2022; single-family starts are expected to rise by 1% to 1.13 million units. Builders, however, predict starts to decrease by 1% in 2023 to a 1.12 million rate.
Still, “while single-family growth slows in 2022 and 2023 and returns to a long-term trend, production will still be 26% higher than in 2019,” Dietz said.
On the other hand, multifamily starts are expected to rise 6.3% compared to 2021. Construction activity on apartment and condo buildings is expected to accelerate due to low vacancies and rising rents.