Residential Growth Forecast to Continue at Lesser Rates than Years PastMay 31st, 2022 by Travis Rains
Richard Branch, chief economist at Dodge Construction Network, says single-family construction is at risk in 2022 after two years of 14% growth in 2020 and 2021. With rising prices and mortgage rates, affordability is currently at a 14-year low, and paired with material prices and labor shortages, it’s a “challenging time for single-family home construction.”
However, the Dodge Construction Network 2022 Mid-Year Outlook delivered via a webinar on May 26 noted the sector is still forecast to experience growth due to a couple of factors. Branch says mortgage rates will remain low, historically, even as they rise. Millennials are also in their “prime home buying years.” That means home construction should continue to rise in 2022, albeit at far lesser rates than in the past two years.
“This is where maybe the lack of supplies might be a good thing,” Branch says. “Even as interest rates rise, it’s not as though there are a plethora of homes sitting on the market unsold. That means that even small, incremental positive changes in demand should keep home construction rising, but in our estimation at a much more moderate pace at just 2% in terms of units in 2022.”
While single-family construction has eased, multi-family construction has seen an opposing trend. Branch says that what’s bad for the single-family market is generally good for the multi-family market.
“All those folks forced out of the single-family housing market are either moving into condos or townhouses, or continuing to rent,” Branch says, noting that 680,000 units broke ground in 2021, marking the best year for multi-family construction since 1986.
Prior to the pandemic, multi-family growth focused on high-end construction in dense, urban areas. Since 2020, activity has shifted toward the middle of the market. Residential growth rates are also stronger outside of urban areas. Furthermore, Branch says the nonresidential sector will be pulled to the suburbs with that preference shift.
“I continue to think that this is a reasonably positive market,” Branch says. “Vacancy rates for multi-family are at record lows across the country, but what we’re seeing in our planning data is a bit of a plateau in terms of the dollar value or the units coming into that database. We do expect growth to continue here but at a slower pace, just a 4% gain in units to 707,000 units.”
Sarah Martin, senior economist at Dodge Construction Network, addressed the southern region’s residential construction forecast for 2022, with total residential growth projected at 7%. Martin says single-family starts will lose pace in 2022 but that demand for housing is likely to remain in the region, with some areas in particular receiving particular note.
“Notably, Texas is home to some of the highest overvalued markets in the country right now,” Martin says. “The Dallas housing market is overvalued by about 46%, San Antonio and Houston by about 30%, and Austin is leading the way at 66% overvalued, making it one of the hottest markets in the U.S. right now.”
She says overvalued markets are likely to recede throughout 2022 but that no crashes are expected to take place. Martin also noted millennials have entered their peak buying years and will continue to drive demand in the market.
Multi-family construction will benefit from a slowdown in single-family construction, Martin says, and is forecast to experience a 9% rate of growth throughout 2022.