A January 2023 report from the National Association of Home Builders (NAHB) details the current state of the residential remodeling and multifamily housing market. Renovations are holding steady, whereas the multifamily market is weakening.
Many professionals wonder if the housing market will crash due to challenging economic times and seek predictions for the next five years.
Multifamily starts in 2023
The NAHB’s report explains some predictions for the remodeling and multifamily housing markets. According to the report, the multifamily housing market boomed in 2022 and saw a 25% increase in units, with around 943,000 apartments currently under construction.
Despite rapid growth in 2022, experts suggest that the number of multifamily starts will fall this year. There are a few reasons for this decrease, including:
- Rising unemployment
- Slow rent growth
- Extra supply in the construction industry
- A backlog of multifamily developments
- Tight financial conditions in commercial real estate
Additionally, stringent regulations can greatly affect the multifamily housing market. Apartment and condominium developments must meet zoning, permitting and public land requirements, as well as building codes, design standards and impact fees. All these factors are contributing to the drop in multifamily housing starts.
Remodeling is still going strong
The remodeling market is expected to continue on a steady path. Some areas where remodeling is growing include cities such as Raleigh, N.C.; Rochester, N.Y.; and Lewiston-Auburn, Maine, among others.
The single-family housing market was the largest contributor to remodeling growth in 2022, with an 8% increase in spending year over year (YoY). The increase was driven by homeowners renovating their kitchens and bathrooms.
More homeowners than ever are still adjusting to the world of remote work in the post-pandemic era. Millions of people work from home, which is driving them to renovate and create offices, gyms and even schools. Homeschooling is becoming highly popular—around 3.7 million children were homeschooled for the 2020–21 school year.
Another reason for growth in remodeling is that home renovation loans are expected to trend downward toward the end of 2023. Less-expensive loans will allow more homeowners to make their desired upgrades.
The market will continue expanding as more people look to remodel instead of buying a new home, which helps support electrical contractors working in this field.
Will the housing market crash again?
The last housing market crashed was in 2005–2007, when the U.S. economy plunged into its deepest recession since the Great Depression.
Since interest rates have yet to take a downward turn and a recession is looming, the housing market may struggle, but not nearly as badly as it did during the Great Recession. According to an article from Bankrate, one reason is that homeowners’ personal finances are much stronger than they were then. In addition, homebuilders are building cautiously to avoid a situation similar to 2005–2007. In other words, there will likely be a shortage of housing available for purchase.
Housing market predictions for the next 5 years
Here are some other key housing market predictions for the next five years to be aware of as threats of a recession become increasingly concerning.
- Expect fewer single-family homes in urban areas: Traditional, single-family homes will likely become rare in some of the core urban areas of the country. It may become more popular to see accessory dwelling units crop up in cities, as they can be built near existing single-family homes.
- Pandemic sparks economic and cultural changes: There’s no question about it—the pandemic uprooted the traditional way people live, work and play. Although COVID-19 numbers are not nearly as high as in 2020, the cultural impact of the pandemic can affect the housing market. Millions of people work remotely, which provides a challenging selling environment for real estate developers and agents. It’s still unclear how the pandemic will pan out and affect the housing market.
- Apartment rentals: prices up or down? According to the National Multifamily Housing Council, apartment market conditions weakened this past January. The Fed’s interest rates affected prices, which are still high, though not as much as a year ago. Sellers are raising rents for tenants and are hesitant to budge on rates. Time will tell if they increase or decrease in the next five years, especially considering inflation, unemployment and other factors.
The U.S. housing market has undergone significant changes in the past couple of years, such as rising home prices and interest rates. However, things cooled down in January 2022 because mortgage rates dipped and home prices decreased. It will be vital to monitor fluctuations as time goes on.