After well over a year since the beginning of the COVID-19 pandemic the United States housing sector has consistently proven resilient despite the multitude of compounding external factors that have brought other industries to a stand-still. Exponential home value appreciation, persistently low mortgage rates, and the notable uptick in overall transactional activity are all characteristics of the healthy market that seemed unfathomable at the beginning of April 2020.
So what does 2022 have in store for the real estate industry? What anticipated trends and developments should investors be on the lookout for—particularly when it comes to construction activity and how this will influence their long-term strategies? Here’s a closer look at key market dynamics to help you plan ahead for the upcoming year and stay ahead of the competition.
A major component of the nationwide issue of reduced housing inventory levels in the new construction bracket was tied to the prohibitive cost of production. Part of the problem has to do with short-term inflation that is adversely impacting the manufacturing side of the house. This has subsequently ramped up the costs of necessary building materials for virtually everything—from houses to cars. Prices for lumber alone drastically increased the cost of building a new home by an average of $36,000. Statistics show that lumber prices increased by almost 250% in the last year alone. Fortunately, experts are forecasting that the supply chain bottlenecks currently upending global supply chains will be ironed out soon. That, combined with what all indicators point to a rebounding economy, translates into more affordable construction costs.
The National Association of Home Builders (NAHB) recently conducted a comprehensive market analysis gauging how builders feel about the housing market when it comes to existing levels of demand for new construction and if that demand will remain for the foreseeable future. The feedback indicated that builder confidence in the market was still robust due to the fact there is an overall scarcity of resale inventory, low mortgage interest rates, and an ever-expanding base of potential homebuyers as the millennial generation experiences a coming-of-age over the next few years. These factors help mitigate the negative impact on the industry that rising materials costs have had—namely driving up the ticket price for buyers—and allow builders to continue with development projects with confidence.
This is good news for the real estate industry writ large, as builders will have to construct somewhere between 1.1 million and 1.2 million new single-family residential units to satisfy long-term demand levels. With prices for several key building materials projected to stabilize over the next year giving builders the chance to replenish inventories, that Herculean task is looking more feasible.
The Mortgage Bankers Association (MBA) anticipates single-family housing starts to be somewhere in the neighborhood of 1.134 million in 2022. It is the beginning of what experts optimistically predict will be a resurgence of the sector, with 1.210 starts expected in 2023.
For investors, this presents an opportunity to acquire newly built developments at feasible prices. Buyers that had been previously intimidated by exorbitant listing prices have bided their time for 2022 to roll around, meaning there will be plenty of pent-up demand for new housing options. And they’ll have the buying power to pay premium prices for the right fit, with the federal reserve’s forecast for2022 economic growth coming in at a strong 3.3%.
When it comes to funding, having the right lending partner can make all the difference—especially when investing in what can oftentimes be a complex and nuanced real estate sector like new construction properties. The experts at Gauntlet Funding have years of experience providing efficient and innovative construction funding solutions. We are intimately aware of the unique challenges and concerns real estate investors must navigate in this exciting asset class. Contact us today to learn more about how we can help you reach your investment goals.
New Construction Loans—Predictions for 2022 | Gauntlet Funding – Melville, NY