Housing, Real Estate and Construction

National Association of Home Builders

Robert Dietz, Chief Economist

The housing market and home building industry remains strong, although it has cooled somewhat since the end of 2020 due to higher prices. The NAHB/Wells Fargo Housing Market Index peaked at a level of 90 in November 2020, but has since cooled off to a level of 83 as of December 2021. A significant housing deficit, combined with demand tailwinds due to demographics (Millennials in their prime home buying years) and ongoing historically low interest rates, has caused demand for new construction to rise.

However, the surge in demand for new homes in 2020 combined with existing supply-side constraints involving the availability of labor, lots, and lumber/materials, has caused a jump in residential construction material pricing (up 19% year-over-year) and residential construction wages (up 8% year-over-year). This situation is made worse by the significant rise in inflation and ongoing supply-chain issues. The result is longer build times (4 to 8 weeks per home on average) and higher home prices, which has priced out some demand.

Housing affordability, now at a 10-year low, is expected to continue to decline as interest rates rise and prices continue to increase, albeit at a slower rate than realized in 2021. However, prospective buyers and renters have more flexibility to select homes and apartments due to increased use of hybrid work models.

Going forward, the home building industry needs to recruit, train and retain more workers. And policymakers need to reduce regulatory cost burdens for land development and construction, in order to ensure an affordable supply of housing is available in areas with job growth. Additionally, reductions for tariffs on Canadian lumber would help reduce the cost of home construction.

Associated General Contractors of America

Ken Simonson, Chief Economist

Both residential and nonresidential construction appear headed for a busy year in 2022. But there are significant obstacles looming from higher materials costs, a clogged supply chain, and worker shortages.

Construction of both single-family houses and apartments is likely to post another year of double-digit percentage growth, despite a sharp rise in house prices and rents. From January to November 2021, building permits—a fairly reliable indicator of near-term demand for new construction—jumped 19% from the same period in 2020.

The enactment in November of the Infrastructure Investment and Jobs Act will give a boost to numerous categories of nonresidential construction. While the timing for most types of spending remains uncertain, additional contracts should be awarded starting sometime in 2022 and continuing for several years.

Construction of many types of manufacturing facilities should be particularly robust. Already, major projects have launched to add plants to produce semiconductors, electric vehicles and their components and charging stations, and renewable energy structures. In addition, growth should continue in the still-hot warehouse and data center segments.

However, the latest outbreak of coronavirus adds to the uncertainty as to when several types of projects will rebound. Office, higher education, and travel- and entertainment-related facilities are especially vulnerable to postponement or cancellation.

Runaway materials costs are likely to remain a major concern in 2022. However, there will be more price declines than in 2021. Already, prices for some types of steel, copper, and aluminum have fallen from their peaks, as have fuel prices. But supply chain headaches have shown no sign of easing.

Labor availability and costs are another potential pain point in 2022. As with other sectors, construction has experienced record-high job openings in recent months. There were 410,000 openings at the end of October, which exceeded the 384,000 hires that month—implying the industry would have hired twice as many workers as it was able to find. Unfortunately, the situation may get even worse, because the industry faces two extra workforce challenges.

First, compared to other occupations, construction craft workers report much lower coronavirus vaccination rates and higher “vaccine hesitancy” rates. That makes them more susceptible to illness and complicates the ability of contractors to field full, healthy crews, especially on sites where owners have vaccination mandates.

Second, the premium that construction has historically paid to attract and retain employees in the form of higher average wages has eroded as formerly low-paying employers have boosted starting pay and added bonuses. To compete in 2022, contractors will have to raise pay even more to offset the lure of flexible hours, remote or hybrid worksites, and other perks that aren’t feasible for most construction tasks.

In short, there will be more projects to pursue, but finding workers and materials to complete projects on time will be a challenge, as will guessing right on costs.

National Apartment Association

Paula Munger, AVP, Industry Research & Analysis

While large, professionally managed and maintained properties are performing very well, many small owners of rental housing continue to struggle. According to a survey released by the National Rental Home Council in September, one-third of single-family rental homeowners have either sold or plan to sell one or more of their properties, a 10-percentage point increase from a prior survey in February. This poses a severe threat to our nation’s affordable housing stock, as 41% of rental properties are owned by individuals whose apartments tend to be more affordable. In fact, two-thirds of owners who already sold properties charged less than $1,250 in rent per month. And although the government set aside $46.5 billion in rental assistance, as of October 31, only 28% of full or partial housing/utility payments were paid to recipients.

Larger owners and operators of apartments still have elevated delinquencies on their books due to the pandemic disproportionately impacting renters’ finances as well as eviction moratoriums. Even so, many are experiencing strong revenue growth driven by both demand and supply-side factors. Private-sector data providers such as RealPage are reporting the highest occupancies on record (97.5%) and double-digit rent growth. New supply is on the upswing after decades of under-building, but supply chain disruptions, labor shortages, and materials cost increases will dampen deliveries in 2022, putting more upward pressure on rents and eroding affordability further. Housing-adverse policy such as rent control, rent caps and eviction moratoriums have a negative impact on housing supply and quality, yet continue to gain traction.

NAIOP: The Commercial Real Estate Development Association

Jennifer LeFurgy, Ph.D., Vice President, Knowledge and Research

Overall, the commercial real estate industry is rebounding from the setbacks it experienced in 2020. The warehouse sector continues to perform exceptionally well, spurred on by e-commerce and consumer spending. Warehouses are increasing in size and in some case becoming multi-story. There is also continued demand for warehouse product in urban areas due to the desire to expedite delivery to the consumer and the need for cold storage facilities to support home delivery of perishables is also increasing. Labor shortages, permitting delays, land availability and the supply chain are current obstacles.

Uncertainty in the office sector remains, with remote work becoming the new normal and return to the office delayed due to concerns about the Omicron variant. Although office net absorption remained negative throughout 2021, it is gradually climbing toward the positive side of the scale. Total net absorption in the third quarter of 2021 was -5.2 million square feet, back from a near record of -34.8 million square feet at the end of the first quarter of 2021. Leasing activity has picked up, cap rates have slightly declined and deal flow has remained healthy. These trends have favored suburban markets more than CBDs. Demand for new office buildings is favorable, as new builds offer the flexible work environments demanded in today’s more uncertain world. This trend should continue over the next year.

American Land Title Association

Diane Tomb, Chief Executive Officer

Due to the record real estate and mortgage activity, as well as the historic increase in home appreciation, title insurance premium volume was up 43.1% percent ($19.1 billion) through the first nine months of 2021 when compared to the first three quarters of 2020. 2021 was on pace for its best year ever as far as title insurance premium volume. To meet the spike in demand, the title insurance industry added more than 16,000 jobs in 2021. The industry now employs nearly 145,000 people across the country.

In addition to increased business, the title and settlement services industry is doing a good job of controlling costs. Countering rising home values, the title and settlement industry continues to find ways to manage homebuying fees as closing costs as a percentage of purchase price declined during the first half of 2021. According to the latest data from ClosingCorp, closing costs as a percentage of purchase prices declined to 1.03% this year, down from 1.06% in 2020.

Implementation of artificial intelligence and machine learning is helping streamline production of title insurance policies. Meanwhile, technology for digital closings is expediting the closing process. More consumers are gradually migrating to a complete digital process. According to a survey from Fannie Mae, 12% of recent homebuyers conducted their transaction completely online during Q1 2021. This is up from 7% compared to the same period a year ago.

Since the onset of the pandemic, title and settlement professionals rapidly adapted their processes to meet the needs of their customers and to continue facilitating safe and secure closings. Since 2019, the number of companies offering digital closings has increased 228% compared to 2019, according to ALTA’s 2021 Digital Closing Survey. The survey of 300 title professionals showed that 46% offered digital closings in 2020 during the COVID-19 pandemic. Prior to the health crisis, a 2019 survey showed that 14% of companies offered digital closings two years ago.

This type of technology has helped decrease closing time due to the number of documents signed ahead of time, while 43% reported cost savings. Implementing this type of closing technology comes with a cost, however. The average expense to implement remote online notarization (RON)—including software, equipment, and training—was just under $30,000 per office, according to ALTA’s survey.

Despite significant growth in digital closings, an overwhelming majority of business continues to be conducted with paper. According to the survey, nearly 85% of respondents reported that all their closings were paper-based, while nearly 5% were fully digital. There is significant opportunity in the digital closing space as RON has proven to be a convenient alternative to traditional in-person notarization for all consumers, but it is especially beneficial to those who are unable to easily travel to access notarial services, serve in the military overseas or have time constraints. ALTA members are leading the way in providing digital closing options that serve today’s consumer.