Housing construction – huge impact from critical worker shortage

“What entry-level, first-time homebuyers want is a lower cost home. It’s impossible to build that when builders are paying an 8% wage increase and a 19% building materials cost increase year over year,” the economist said. “It’s harder to build that $250,000 starter home when now the median home price is close to $450,000. That’s 20% higher compared to last year.”

Here’s another statistic that should break through the abstraction of dry data: “Every quarter-point hike in the mortgage rate means that 1.3 million households can’t afford their house anymore,” Nanayakkara-Skillington said, offering the statistic when asked what the backdrop of rising rates mean for a typical homeowner.

Yet for all the sobering statistics, NAHB economists don’t expect a real estate crash of the kind seen during the Great Recession of 2008-09. While that incident was a bona fide crash, more often than not the term refers to a market cooldown and pushback on home prices. Historically, the housing market peaks about every 18 years prior to crash – which is actually a normal occurrence despite a scary name invoking images of a dystopian landscape in the mind of some.

“People always compare this time with 2008-09,” Nanayakkara-Skillington said. “But I see a big difference. Before the 2008 crash happened, there was a lot of supply of houses, but right now we don’t have that inventory anymore. We’ve had a decade of underbuilding compared to the population growth – 2020 was the first year we crossed over the million mark.  We need to be building around 1.5 million to two million homes just to keep up with the demographic demand coming from the millennials.

“Freddie Mac estimates the housing deficit right now is 3.8 million units. Because of that, we don’t anticipate a crash like we saw in 2008. But I think the supply side headwinds mean that construction is going to slow down. It’s harder to build affordable homes. That’s why we see single-family stock declining 6% next year.”