Will Higher Home Prices Slow the Pace for Doors and Windows?

February 14th, 2024 by Drew Vass, Executive Editor

In the third quarter of 2023, rising mortgage rates, elevated construction costs and a limited inventory of homes pushed housing affordability to its lowest level in more than a decade. Meanwhile, new fourth-quarter statistics show little improvement. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) released last week, just 37.7% of new and existing homes sold between October and December 2023 were affordable to families earning the U.S. median income of $96,300. According to the National Association of Realtors (NAR), prices among single-family existing homes climbed in 86% of measured metro areas in the fourth quarter, up from 82% in the previous quarter.

Despite the gap between income levels and home prices, construction of new, single-family homes has increased and is expected to rise over the course of the year, bringing with it more demand for doors and windows. There are also signs that home prices are heading in a better direction, says NAHB chairperson Alicia Huey.

“Affordability conditions should show some gradual improvement this year, as mortgage rates peaked in the fourth quarter of 2023 and are now well below 7%,” Huey says.

As mortgage rates decrease, experts say they expect new home construction to rise—predicting anywhere from 5% to 9% growth in new home production this year. In 2025, that rate is expected to expand further, says Robert Dietz, NAHB chief economist, to around 7-8%. By 2026, the industry is expected to build at a rate of 1.1 million homes per year, Dietz predicts. At that rate, “Increased homebuilding, along with lower mortgage rates, will not only improve housing affordability but also help bring more homes onto the market in 2024,” says NAR chief economist Lawrence Yun. 

But before homebuilders can deliver on those predictions, there are numerous factors to overcome, including labor and regulatory costs.

“Even as lower interest rates track with our latest builder surveys, that indicate an upturn in builder confidence in the single-family market, affordability conditions will remain challenging as builders contend with a high-cost regulatory environment and a chronic shortage of workers and buildable lots,” Huey says.

The same regulatory environment also impacts inflation, says Dietz, which KMR’s research shows is a primary sticking point among door and window companies regarding the industry’s outlook. There is a fair level of optimism that inflation is finally slowing, but uncertainty remains in whether interest rates will come down, and how quickly (or slowly).

“Even as overall inflation continues to moderate, shelter costs continue to put upward pressure on inflation, accounting for more than half the inflation gains in the latest Consumer Price Index,” Dietz says. “The best way to tame shelter inflation and address America’s housing affordability challenges is to enact policies that reduce regulatory costs to help builders increase the supply of housing.”

There is also a need to address the cost of materials, more than 80% of which saw significant price increases since 2020 of around 19%. These days, most are expected to continue to moderate, but one is of concern to Dietz.

“I’m a little concerned about the availability and cost of lumber, as we see some expansion of residential construction,” he says. While prices have improved, “underlying challenges in the lumber market have not been fixed,” he adds. “As the market moves into rebound mode, in 2024 we could see some lumber price increase, due to tariffs on Canadian lumber. The 9% effective tariff rate is still in place, and we’ve had a number of mills that have shut down.”

A solution, he suggests, might include regulations—policies to enable more domestic production of lumber. That’s the move that many in the industry hope for going forward.

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