Housing affordability will continue to be a top concern this year. On the demand side of the housing market, limited inventories of single-family homes generated strong price gains in 2020. While supply-side pressures, such as resurgent lumber prices, a shortage of buildable lots, inconsistent access to building materials and a regional skilled labor deficit foreshadow higher costs and longer build times this year. A changing regulatory landscape threatens to further erode housing affordability and make the tight inventory environment worse. Housing is one of the few sectors experiencing year-over-year job gains, as the industry has hired more workers in the wake of the pandemic, but it still has not been enough to meet the increasing demand for housing. Historically low interest rates are one factor driving this demand, but a geographic shift in where people are choosing to live is also affecting the housing industry, as lower-density areas become more popular. The nation ramps up deployment of COVID-19 vaccines this year, this will be good news for the overall economy and strengthen housing demand but also place upward pressure on interest rates, which will price additional households out of the 2021 market.
Ongoing gains for single-family construction in 2021, though at a slower growth rate than in 2020. Production is expected to rise an additional 5 percent to 1.03 million this year – marking the first year that total annual single-family production has exceeded 1 million since the Great Recession. The multifamily construction market will experience weakness as rent growth slows and vacancy rates rise. However, the development market should stabilize by 2022. Multifamily starts are expected to fall 11 percent in 2020 to 349,000 units and post a 5 percent gain this year to 365,000 units. Remodeling will remain strong as people continue to upgrade existing homes for more purposes, such as home offices, home gyms and in-law units. Residential remodeling is expected to register a 4 percent gain this year over 2020. New-home demand is greatest in Texas and Florida, which accounted for more than half the nation’s population growth last year. Arizona and North Carolina also posted large population gains. All the economists agreed that tenants are shifting their preference from multifamily rental to single-family rental.