Las Vegas — Higher interest rates drove down single-family housing starts in 2023 with a slide of 6 percent to 943,000 units, but economists predict gains in 2024 and 2025.
The number of houses built is expected to rise 4.7 percent to 988,000 units in 2024 followed by a 4.2 percent increase in 2025 to 1.03 million units.
Slow growth is happening after two years in the tank, including an 11 percent decline in single-family housing starts in 2022.
The figures come from Robert Dietz, chief economist for the National Association of Home Builders. He was part of a panel talk at the International Builders Show, where many major plastics processors present their latest building materials for siding, windows, decking and more.
"If you talk to anyone in the housing industry and certainly the real estate industry, 2022 and much of 2023 felt like a housing recession," Dietz said. "I think if the academics go back in time as a look-back exercise, they'll probably say there was a growth recession in 2022."
From the fourth quarter of 2020 to the first quarter of 2023, single-family housing starts dropped 32 percent, before climbing up again, according to NAHB.
"From a look-forward perspective, growth will be little slower than long-term growth trends but we have no negative quarters in our macro outlook and that's certainly good for for-sale and for-rent housing demand," Dietz said.
It's good for the overall economy, too, with housing representing 30 percent to 40 percent of the value of the goods and services that the Bureau of Labor Statistics uses to track inflation in the Consumer Price Index (CPI).
"In terms of the inflation outlook, I think this is an under-reported story," Dietz said. "Shelter inflation really is the driving determinant factor when it comes to overall broader measures of inflation like CPI."
The CPI peaked in June 2022 at a 9.1 percent growth rate and has retreated to 3.4 percent. but the market basket of goods and services related to shelter remains higher.
"Shelter inflation — rent and homeownership costs — are still rising at a 5.4 percent rate, and for the past year, more than half of overall inflation in the economy has been shelter inflation," Dietz said.
Home builders continue to contend with elevated construction and regulatory costs related to complying with building codes and zoning laws. Regulatory costs make up almost 24 percent of the final sales price of a newly built single-family home, or $93,870 per new home, according to NAHB.
The trade group conducts a survey on the regulatory costs of home building every five years. The latest survey shows regulatory costs are up 11 percent from 2016 to 2021, which is faster than inflation.
Coupled with higher rates for 30-year fixed-rate mortgages, a labor shortage and a lack of building lots, NAHB says the United States has a deficit of about 1.5 million housing units.
"The only way to tame shelter inflation, and get overall inflation lower, is to build more housing," Dietz said, adding a supply-side solution is needed.
The Federal Reserve could ease the problem if it keeps cutting interest rates. The NAHB is forecasting two or three rate cuts of 25 basis points each in the latter half of 2024.
"By the end of this year, NAHB projects mortgage rates will be below 6.5 percent and by the end of 2025, we expect rates to be in the high 5 percent range," Dietz said. "This is good news for builders, housing demand and housing affordability."
