The economy has been resilient, the economic forecast looks good, and there are plenty of gaps to address.
Those were Mountainwood’s takeaways at the Home Building Association of Greater Portland’s annual Housing Forecast at the Oregon Convention Center. The Mountainwood Homes team was among the 500 industry professionals and government officials gathered to hear insights, analysis, and unique perspectives on the housing industry.
The 2024 Housing Forecast presented by PARR Lumber featured NAHB Chief Economist/SVP Dr. Robert Dietz, who discussed what 2024 holds for the housing market and our industry, including economic and building issues, trends, and predictions for multi-family, single-family, infill, and remodeling.
Overall, the economy has been resilient and strengthened in the third quarter. There may be slower growth ahead, but nothing like a full-blown recession. As rates get close to 8%, we are close to the peak of rates. A typical 30-year mortgage rate is 6.3%. We may see rates cut in the middle of next year. Remodeling is gaining market share as homeowners reinvest in the existing housing stock. Most homeowners don’t want to move because they don’t want to give up their low rate.
For information that hits closer to home, the crowd also heard from Josh Lehner, an Economist with the Oregon Office of Economic Analysis, who focused on relevant housing and economic data at the state and local level. His presentation included housing-related data and foreseeable challenges from his perspective and the forces driving the Metro Portland market.
As we dove into the data with the Portland market, we learned that construction costs are $100,000 higher in Portland Metro than in the rest of the country. The regulatory costs per new home were up 11% from 2016 to 2021. This is the total effect of building codes, land use, environmental, and other rules. The increases during development and construction must be addressed when discussing housing affordability.
Lehner emphasized that urban areas still matter, and large metros are still vibrant.
But, we would shrink if not for domestic migration to Oregon.
In 2022, Oregon lost population for the first time in two generations. Who left? It looked like everyone – regardless of age group, household income, race, or educational level. There was a surge of people who left during the pandemic. How do we know? The number of surrendered driver’s licenses at the Oregon DMV tracks the data. People are still migrating to Oregon, but at a different rate than people are moving out of Oregon.
However, current Oregon demographics are great. Millennials are the largest generation alive and are a key economic force. Boomers are entering into traditional retirement years. Gen Z demographics barely offset retiring Boomers, and Oregon will need Gen Z to move here like the Boomers and Millennials before them. They will be the economic driver in the 2040s.
Jim Irvine, Past President of the HBA and NAHB, moderated the discussion and concluded the event with an interesting insight.
“Our job is to build houses and coalitions. It’s all about collaboration. This is the missing middle going forward.”
Mountainwood Homes’ Takeaways:
“Third quarter numbers are better than predicted. It’s not as bad as the narrative of the national media wants to portray. Somehow, we need to overcome this message as an industry. Second, the inflation rate is higher in our industry versus overall. We need to figure this out and make changes.”
- Robert Wood, Owner/President
“First, Oregon has record high enrollment in apprentice programs, but needs to get younger aged people into the programs sooner, specifically 18-19-20-year-olds instead of those in their mid-20s. Secondly, the interest rate should be around 6%, which is good news but not down to 3% again. Homeowners will stay in their homes and remodel.”
- Heather Wood, Owner/Designer
“Shelter inflation is at 7% with overall inflation at 3.5%. It seems like we have been feeling that a lot over the last 6 months with client expectations of pricing. Overall consumer debt has increased dramatically. Look at auto loans for a recession indicator. The average effective rate for builders is 13%.”
- Derek Wood, Project Developer
“Remodeling is growing as more homeowners invest in the existing housing stock.”
- Ammon Hardy, Project Developer
“Remodeling is 40% of residential construction and grabbing market share as well.”
- Sierra Lemiuex, Designer
“Shrinking lot development will create compressed availability, but single-family home construction is expected to rebound and lead the cycle of growth.”
- Kristin Alderman, Client Coordinator
“I was surprised to hear how much population growth or lack thereof affected the economy and the future economy.”
- Cory Richardson, Field Production Manager
“Government is a huge reason for the cost of construction going up. If new federal codes need to be met in addition to local codes to qualify for federal home loans, it will increase the cost of construction and make homeownership even harder for many.”
- Ivan France, CAD Designer & Integrator
“The housing shortage is a problem of supply and demand. We have less than a one-year supply of lots in our area. Lot pricing volatility and land developers’ access to capital contribute to this shortage. Also, the migration out of Multnomah County is real, primarily due to tax policy.”
- Alicia DeCosta, Marketing Manager
Looking ahead to 2024, Dietz predicts that the Fed will ease, and interest rates will normalize toward 6%. Single-family home building will lead to recovery. Demand will return, but supply-side issues will increase due to a lack of lots, Acquisition, Development, and Construction (AD&C) availability, and building material constraints. From 2025 to 2023, demographics yield a good runway for home-building growth. Structural housing deficit will be reduced, and single-family home-building volumes will be near or above 1.1 million per year. After 2030, we may see declining demographics weaken multifamily and single-family demand.
Leher pointed out positive news surrounding young Oregonians going into the trades. With record enrollment in apprenticeships, people aren’t shunning the trades like they used to. There are viable jobs and careers for young people, especially those 18- to 20-year-olds. They can get to work without acquiring massive amounts of student loans.
“If we are divided, we’re going in the tank,” added Robert Wood. “That applies to this industry, country, and as humans. We have to figure out how to work together across party lines, socioeconomic lines, and even with those who have differing opinions on how to build. That’s where the strength is going to come. Each group standing in their corner, not willing to budge, will create the biggest problem. We can both learn and figure something good out to move us forward.”
To view the slide presentations from the 2024 Housing Forecast event, visit the HBA of Greater Portland website.