LAS VEGAS — Home builders are expecting a little more pain before business improves.
While realtors believe that the housing market is on the mend, home builders are still cautious, with low demand and rising construction costs. Home builders are one of the key contributors to the housing supply.
And they’re likely to be building fewer homes. Housing starts are expected to fall further, before demand recovers in the back half of this year, according to a forecast by one key industry group.
“Our thesis is that recession is underway,” Robert Dietz, chief economist and senior vice president at the National Association of Homebuilders, said during a press conference Tuesday hosted by the NAHB, during the International Builders show in Las Vegas, Nev.
The NAHB is expecting U.S. gross domestic product (GDP) to drop in the first two quarters of 2023, which would total six consecutive drops in GDP since 2022. They are also expecting a rise in unemployment rates.
More pain before recovery begins
The industry group expects single-family starts to only recover a year from now.
With the U.S. Federal Reserve expected to normalize its policies in the second half of this year, as it reaches its goal of controlling inflation, “the pace of single-family construction will bottom out in the first half of 2023,” Dietz said.
The NAHB said that single-family starts likely fell by 12% in 2022, compared to the year before, to 999,000. That would be the first time in 11 years that single-family starts dropped, the NAHB said.
“That means 2021 is the best year for single-family home building since the Great Recession,” Dietz said. The country built 1.13 million homes in 2021.
The NAHB also expects single-family starts to fall further in 2023, by 26% to 744,000. “That is going to mark a fairly large decline from 2022,” Dietz stressed.
But starts will recover in the second half of the year, he added.
“By the time we get to 2024, we will get our calendar-year increase,” he said. By 2024, starts will grow again, the NAHB said, likely to a 925,000 annual pace.
On the multi-family front, the NAHB expects construction to fall 28% in 2023 to 391,000 and to “stabilize” in 2024 to 374,000.
For context, there are more than 940,000 apartments under construction, the group said, which is the highest since 1983.
Mortgage rates — and home prices — will fall
The builders also expect mortgage rates to fall below 6% by 2024.
“Falling rates will set the stage for a housing rebound later in 2023, and a better affordability environment will lead to a recovery of housing demand,” Dietz said.
NAHB is also expecting home prices to fall as much as 15% in 2023. But that comes on the heels of home prices gaining nearly 40% during the pandemic years.
Write to Aarthi aarthi@marketwatch.com