Will 2022 be known for its record-breaking building construction starts or a housing slowdown? If you follow housing news, you can read conflicting messages across platforms. Sometimes on the same day. That may cause you to question whether there is a housing shortage and, if so, how it will impact real estate investments.
Here’s what you need to know:
Construction starts: Bloomberg reports that in August 2022, new construction rose 12.2%. Between August 2021 and 2022, home sales fell by 19.9%, with the median price declining from just over $400,000 to $389,500. A cooling market could signal a decline in sale prices, making some real estate less profitable.
The challenge with statistics is that there are so many different numbers, each telling a different story. Here are the primary statistics providing an overall glimpse of what is happening in the industry:
- Permits and authorizations are the number of new construction projects approved by local housing authorities. Permit applications have slowed significantly in 2022, which means there will be less construction in the next 12 to 24 months.
- Housing or new construction starts describe the number of projects breaking ground during a specific period. In 2021 and the first quarter of 2022, the strong economy resulted in a record number of housing starts. As interest rates rose, fewer companies applied to build, leading to a drop in approved permits. However, new construction starts remain strong as companies complete projects already in progress.
- Home sale statistics break down into several categories: existing and new home sales, pending sales, the price sold versus the asking price, and the number of days on the market. These numbers can vary depending on whether they use the average or median price and the period compared. Most often, statistics compare year-over-year or month-over-month. For example, numbers might compare September 2021 to September 2022 or August 2022 to September 2022.
Each statistic provides different signals because real estate is synclinal, and there is a lag between permit approval and the sale.
The Status of the Housing Market
The other consideration is housing type. Single-family homes have a different demand and sales cycle than multifamily. And home sales do not accurately reflect demand for single-family homes or apartment rentals.
For instance, since March 2020, when the pandemic began, home prices rose an average of 39%. A shortage of homes for sale led to bidding wars, driving up prices in a time of record low interest rates. Today those conditions have shifted, and fewer borrowers can qualify to buy, reducing demand.
Current home inventory remains low as homeowners choose to stay and fewer borrowers qualify for loans. Construction has pulled back as interest rates and construction costs rise, taming an overheated buying market.
The State of Multifamily Real Estate
The same conditions cooling home sales are driving demand for multifamily housing. The bidding wars and rapid price increases of the last two years took their toll on potential buyers. With interest rates rising, those unable to secure a loan may have to wait for conditions to change. Price declines, falling interest rates, or adjustments in lender borrowing parameters are all factors that have made it easier to rent and harder to own.
Multifamily homes currently face a severe housing shortage brought on by slow housing developments during the great recession, an increase in migration, and Millennials moving out or uncoupling with roommates to start their own households. Experts predict the shortage of multifamily housing to last at least through 2035.
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