2024 Housing Market: Exiting Decline, Surging Demand for Construction

Over the past three years, the construction industry has faced a downturn due to the pandemic. Fortunately, there's an anticipation that the housing market will bounce back this year, triggering a surge in demand for the building industry.

(Photo : Getty Images/Joe Raedle)

2024 Housing Market

On Thursday, the National Association of Home Builders (NAHB) Chief Executive Officer Jim Tobin stated that he foresees a rise in demand and building in 2024. This is a significant change from the previous few years, characterized by low inventory and a lack of activity.

Since high mortgage rates have discouraged many potential sellers from selling their houses, homebuilders have become an essential source of new housing supply, resulting in a smaller inventory of homes already on the market. Nevertheless, the NAHB's sentiment index has increased due to the current decline in interest rates. According to the Mortgage Bankers Association, the number of mortgage applications to purchase homes increased by 22% year over year in December.

Moreover, data from the US Census indicate that housing permits increased by 1.9% in December compared to November and by 6.1% annually. Although the number of new housing starts for the month was down 4.3%, they are up 7.6% from the previous year. On the other hand, there has been an increase in foot activity in model houses over the past few months, which may indicate that springtime homebuying will be particularly robust this year. 

This is partially attributable to the fact that mortgage rates have declined steadily over the past few months. Based on the statistics provided by Freddie Mac, the 30-year fixed mortgage rate dropped to 6.60 % in the previous week, marking its lowest level since May 2023. 

Furthermore, Tobin estimates that the rates will likely continue to fall over the following year. During this time, prospective buyers are likely becoming more comfortable with the new standard of mortgage rates of 6%, and they may be getting ready to enter the property market once again. 

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Effects of High-Cost Materials

Reduced mortgage rates are generally regarded as positive news by industry experts; however, there is yet another obstacle to overcome: the extremely high building expenses. As the new year begins, one of the most significant challenges that builders are dealing with is the cost of housing, which indirectly influences manufacturers of interior decoration materials such as flooring systems. For example, single-family construction companies have begun to focus on lowering mortgage rates to engage people in purchasing homes. 

As noted by Todd Hershauer, director of builder and multi-family construction at Mannington, this is causing developer margins on concrete upgrades to increase, helping to assist in funding projects. In addition, there is pricing pressure from the home buyer for less expensive solutions.

Accordingly, adopting an 'everything included' package by a more significant number of production builders could reduce consumers' customization on their homes. Those producers, flooring contractors, and constructors who have benefited from customization of their material selections within design studios may see decreased profitability. Thus, increasing regulatory expenditures, which account for approximately one-quarter of the price, will influence home sales in 2024.

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