What’s In Store for the Housing Sector?

Soaring inflation, prices at the pump, and interest rates have many of us hanging in the balance.  Are we heading into another recession, or will the economy—specifically, the housing sector—be resilient enough to ride the wave?

Last week, I attended PCBC (my first in-person industry conference in over two years) and learned what’s top of mind for some of the country’s leading builders, large and small.

Almost all of the builders that I spoke with indicated that they were experiencing a decided slowdown in sales since the Fed increased interest rates.  One builder told me that sales had decreased from 125 homes per month earlier in the year to three last month.

While they lamented the downturn, most of those builders were quick to point out that their current pipeline of sales would carry them through at least the end of the year, and that, in some ways, they were happy to have a little break in the action to catch their breath from the craziness of the last two years and allow the supply chain to catch up.

The manufacturers that I spoke with generally felt the same way. Some were projecting a dip in sales, but they forecasted that the drop-off would be more of a blip than a plunge.

Dave Bernadino, Partner at Ammunition, an Atlanta-based agency, offered an astute observation.  “I think we’re in a scenario that is more like 2002, when the tech industry was impacted but the housing market stayed relatively stable, rather than 2008, when the housing market crashed due to unsound fundamentals.”

Ron Jones, President of Green Builder Media, also has a bullish view of the housing sector.  “No doubt, soaring inflation, high gas prices, and supply chain challenges are putting pressure on home buyers and impacting the housing sector, and we can expect that rising prices will cause the housing market to cool off a bit,” Jones asserts.  “But, given the imbalance of demand and supply and the desperation of home buyers of all kinds, the shelter industry will not only survive the downturn, but it will be a leader in the recovery of our economy.” 

Jones conjectures that the housing sector will be one of the bright spots that will lead us into the next era of prosperity.  With an impeccable 40-year record as an industry pioneer and visionary, far be it from me to argue with him.

Certainly, we can expect the continued tapering of home sales and cooling off of prices in the coming months. But perhaps this market right-sizing is a good thing—not just for those builders and developers who welcome a small respite from the breakneck speed of the 2020-2021 housing market, but also for home buyers who won’t feel so pressured to pay more than the asking price for homes that don’t totally fit their needs in the frenzied get-it-before-it’s-gone environment of the past two years. 

Higher interest rates are certainly impacting housing affordability, but if the tradeoff is an enhanced buying experience in which homebuyers can take their time, make better decisions, and end up with homes that offer an improved long-term value proposition, maybe the correction is worth it.

While the depth and breadth of the economic impact to the housing sector is up for debate, there is no question that the way we design and build moving forward will be different from the past. This is due to a unique combination of pressures, such as persistent labor challenges and material shortages that have wreaked havoc on construction schedules; intensifying wildfires, superstorms, extreme temperature, floods, and other natural events that have necessitated a more resilient built environment; and changing consumer expectations that are dictating healthier, higher performance homes, which are all pushing the housing sector through the eye of the needle.

An evolution is taking place: the building sector is changing from within. 

It was abundantly clear last week at PCBC that even though some are still fashioning futile attacks against it, most builders have woken up to the fact that a decarbonized, net zero, electrified, healthy, connected, resilient future is inevitable, and they need to claim their seat at the table before they get put on the menu.

This is a welcome shift, to be sure, but there is still much more work to be done. While many of the large production builders are adding executive positions to oversee corporate sustainability initiatives and Environmental, Social, and Governance (ESG) efforts, the verdict is out if these companies will raise the bar or just greenwash the floor.  Are they truly willing to transform their systems to create real change, or will they just spew pretty marketing language propped up by smoke and mirrors rather than any real substance?

Certainly, the SEC’s climate risk disclosure requirements for public companies will require some level of authenticity and transparency, but the rest remains uncertain.

I, for one, will maintain a vigilant watch.  And I don’t plan to let any level of greenwashing slide under the radar.