VOL 2024 ISSUE 1

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VOL 2024 ISSUE 1



Home builders primed for better 2024

“ But we ’ re still not close to solving the inventory shortage ”

Housingwire . com By Sarah Marx
In some ways , 2023 was the year of the homebuilder . There wasn ’ t much competition from existing homeowners . And with the ability to buy down consumers ’ mortgage rates while still maintaining double-digit margins , new construction grew to comprise roughly 30 % of total housing inventory in 2023 , more than double a normal year .
The business appears durable , too . Many of the top national homebuilders have rosy forecasts for the coming year .
“ The new home market has been extraordinary in 2023 , and I think heading into 2024 , we ’ re going to have the golden age of new home construction ,” David O ’ Reilly , CEO of Howard Hughes , said in a recent CNBC interview .
Most housing market forecasters believe that the existing home-sales market will likely only improve slightly next year . Let ’ s look at the new construction forecast for 2024 . Housing starts
Economists believe that 2024 will be a slightly better year than 2023 for homebuilders , but that some headwinds will persist , especially for nonpublicly traded builders , who lack the economies of scale and access to capital markets that their larger cohorts possess .
At around 30 % now , the homebuilding industry is likely near the peak level of new-home sales as a share of the entire housing market , according to industry experts who spoke with HousingWire in August .
In terms of housing starts , a key measure of coming inventory , National Association of Realtors ’ Chief Economist Lawrence Yun forecasts 1.04 million new single-family construction units in 2024 . Ali Wolf , Zonda ’ s chief economist , predicts 930,000 new single-family construction units next year , while BTIG ’ s managing director and homebuilding analyst Carl Reichardt expects 980,000 new single-family units . For new home sales , BTIG forecasts 705,000 sales , while Zonda expects new home sales to remain flat year over year . The pipeline
Depending on the source , the U . S . remains deficient by anywhere between 1.5 million and 7.3 million housing units due to a severe lack of supply produced between 2012 and 2019 .
This year , even with the boom in new-home construction , “ we ’ re expecting a number somewhat below 900,000 for single-family home starts ,” Robert Deitz , the chief economist of the National Association of Homebuilders , told HousingWire in August . “ We need to build above 1.1 million to start reducing our deficit .”
In short , the pipeline of new single-family homes isn ’ t anywhere close to reaching demand but there is some encouraging news .
Privately‐owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1.46 million , roughly 2.5 % percent below the revised October rate of 1.49 million , but 4.1 % above the November 2022 rate of 1.40 million .
Single‐family authorizations in November were at a rate of 976,000 , 0.7 % above the revised October figure of 969,000 . Authorizations of units in buildings with five units or more in November were at a rate of 435,000 .
While permits for single-family construction were at their highest level since May 2022 , new apartment construction permits were down 21 % compared to last November and are at their lowest level since October 2020 .
Data on residential permits suggest that new single-family housing construction will continue to be robust heading into 2024 , while apartment construction will be slow .
According to Dietz , the long-term housing deficit , coupled with lower mortgage rates and a persistent lack of resale inventory will help buoy demand for new single-family construction .
Meanwhile , many factors indicate that multifamily construction will post a significant decline in 2024 . First of all , 2023 saw the largest number of apartments under construction ever recorded since 1973 . Additionally , rent growth is slowing and the vacancy rate in rentals is increasing . The biggest headwind that homebuilders will confront when it comes to multifamily construction is the tight financing conditions in multifamily development .
In terms of sales volume , Dietz expects that new home sales will comprise 15 % of transactions on the market in 2023 .
“ We believe both of those figures will decline in 2024 as resale inventory increases with declining mortgage rates ,” Dietz said .
For more than a decade , housing has suffered a structural shortage of homes rooted in supply-side issues . Labor shortages , lot shortages , lending issues , cost of lumber and materials as well as legal and regulatory barriers have made it difficult to deliver more homes to the American market . Dietz estimates that the U . S . is short of 1.5 million homes right now .
Over the past few years , single-family construction ramped up , starting in 2021 as a strong demand kicked in and supply chain issues were resolved . Both in 2021 and 2022 , there were over 1 million new single-family starts nationally . By contrast , in the decade 2009 through 2019 , there was an average of 660,000 single-family homes constructed each year . This year will probably be a little slower than 2022 , with an expected 950,000 new single-family starts when the full data is in . The slower construction of new , single-family homes can be explained partly by the sharp increase in new apartment construction in 2023 . Private builders will face more headwinds in 2024
The tightening of lending standards will impact smaller homebuilders more than the larger 20 publicly-traded builders , experts told HousingWire .
There are about 12,000 private builders in the United States , according to Reichardt , BTIG ’ s homebuilding analyst .
The labor supply shortage is another headwind that might weigh down on the industry next year . The NAHB estimates that the construction industry is short of about 400,000 workers . Article : https :// www . housingwire . com / articles / homebuil ders-are-primed-for-an-even-better-2024 /