Red-hot residential market to ‘normalize’ in 2022

2022“Residential market activity is expected to slow slightly in 2022, but I am not predicting Armageddon.” That was the main point that Connor Lokar, senior forecaster at ITR Economics, brought home in his recent presentation: Construction Market Trends for 2022. The informative webinar looked at emerging trends in financial markets and the potential impact on the US economy in the coming year. .

Following are the key highlights and takeaways from the presentation.

The red-hot US market that has defined much of the last six quarters is expected to see some shifts in 2022. “We have seen leading indicators and factors such as permit trends begin to confirm that outlook in recent months. So it looks like a delay is very much on schedule.”

Those leading indicators include gross domestic product and housing start-ups which are still making progress despite an expected slowdown on the horizon. “We’re going to see a nice stable base,” Lokar said.

While a slight slowdown in housing activity and growth is expected in 2022, Lokar said it’s important to keep things in perspective. “People tend to hold onto that slowing part and put that in the negativity for next year, but that’s not what we’re asking for at ITR. We are still advocating a positive growth rate. It won’t be the nearly 20% growth we’ve seen, though.”

According to ITR Economics, the housing market is more likely to see growth in the low to mid-single digit range before 2022. “We are forecasting 4.3% growth in single-unit launches,” Lokar said. “That’s just a volume forecast, which will be around 1.2 million units by the end of next year. However, that still means more homes will be built in 2022 than in 2021. It’s important for businesses to frame that properly as they build their budgets and forecasts and how they deal with their inventory levels as we move into next year. especially if product availability starts to improve.”

Lokar stressed the importance of not interpreting the expected slowdown in growth as a slowing economy. He rather called it a return to normalization. “We have been living in this accelerating growth phase for a long time, which makes it difficult to remember what the statistically normal growth rates look like. I see it as taking our foot off the accelerator, not necessarily stepping on the brake and backing up. Given the cyclical upswing we’ve seen over the past year and a half, it’s very easy to get caught up in this and start operating under the assumption that we’re insensitive to the business cycle; we are not immune to a delay.”

Another reliable barometer of the housing market prospects for 2022 is the number of permits issued. The more permits issued today, ITR notes, the more construction activity we’ll see in the coming months and 2022. “That’s about as solid as any short-term leading indicator we’re seeing,” Lokar said.

Uncertainties loom

Lokar also acknowledged that there are factors that can create an environment of uncertainty. He mentioned the current infrastructure law being debated. “There will probably be effects, probably not huge, at least for next year. It can have an impact on the roll-out time for construction projects.

Another point of uncertainty is the confusion surrounding the deportation moratorium. “It was temporarily extended, then it was overturned in court and now it continues,” explains Lokar. “That could affect some markets.”

But arguably the most important ‘X’ factor, he notes, is the track of the coronavirus pandemic — especially the delta variant. “ITR does not expect a COVID-19 2.0 type scenario for 2022 or any sort of cliff-fall or recession type,” Lokar noted. “Still, we are likely to run a likely downside risk to markets that are already under pressure.”

The good news is that many of the issues that have kept executives up at night for the past 18 months — inflation, pressure on material costs, material availability, longer lead times, etc. — are showing some signs of abating. “Some of those issues are getting a little easier to manage,” Lokar said. “There’s a lot to look forward to here as we look to 2022, but people just need to be a little bit more aware of a downward shift in growth that’s going to happen on the housing side.”

All things considered, ITR Economics expects industries tied to the housing market to thrive in 2022. “It’s a delay, but it’s not a prediction of disaster,” Lokar said. “Next year it will just look and feel a little different. I think from a price and supply point of view we will see more manageable trends, which might make next year a bit more enjoyable.”

Comments are closed.