How to stay ahead of construction housing market predictions

The construction industry is changing month by month. With clients, employees and projects needing your time and attention, it can be hard to stay ahead of what’s next in the market.

The uncertainty in the market can lead to lots of questions from home builders.

Buildertrend combined our industry knowledge with insights from real estate economist Mark Boud to provide answers to some of the top market questions today.

When will the housing market crash?

Good news. Housing experts aren’t expecting a crash anytime soon.

Instead of sweeping drops in the value of homes, expect slow declines. Housing economists are estimating a 5% drop in home prices, much lower than the 20-30% decreases that would signal a crash.

Still, there are other factors that may impact home buyer interest. Interest rates and inflation may cause a hesitation to go under contract with a new build. A slow return of job seekers to the workforce is contributing to price tags, as construction owners are paying more in overtime or extending project timelines. With longer project timelines and less construction workers to complete them, available inventory is impacted.

Is there really a housing market shortage?

The National Association of Realtors estimates there’s a shortage of 5.5 million homes nationwide.

Still, the biggest challenge facing home buyers may not be lack of inventory. It’s a lack of affordable inventory.

Potential home buyers everywhere are all asking themselves the same question: How much house can I afford?  

A combination of high demand and low interest rates in recent years has driven home prices up. As those prices start to decrease, increasing mortgage rates are now driving monthly payments up for potential buyers. As a result, the National Low Income Housing Coalition estimates there’s a shortage of 7 million affordable homes for low-income families.

Construction forecasts suggest that while inventory may increase, it won’t be drastic. The reason for this – according to Mark – is because of overvaluation and undersupply.

What’s overvaluation?

Overvaluation is the act of putting too high a value on something. In construction, this happens when house prices rise higher than construction costs and buyer incomes.

What’s undersupply?

Undersupply results in a scenario where there’s less supply than required to meet demand. In construction, undersupply is often seen when there’s high demand by home buyers but a low amount of budget-friendly homes for sale.

“We’re finding ourselves in this period where costs are still high,” Mark said. “Some builders are finding out that even near-term projects aren’t going to be able to sell for the high prices required to cover the costs it takes to build. This tightens supply even more. Overall, supply is going to remain tight.”

Will the construction labor shortage continue?

Labor shortages are continuing to have an impact on housing affordability. This means construction business owners must pay overtime for employees to stay on deadline. Even so, some timelines get extended, meaning more of an expense for both builder and buyer.

A recent report from the Home Builders Institute estimates 2.2 million workers will need to be hired and trained within the next three years to meet projected housing demands.

The number may seem unachievable. There’s been slow employment growth in recent months and small projected rates of change over the next decade.

Still, if the industry does face a recession, contractors could experience an uplift in hiring and retention of workers looking for steady income. It’s a situation Mark expects to remain difficult, especially when attracting young talent.

How to address affordability as a construction company

Market conditions may seem out of your control. Construction companies can take steps to improve affordability without impacting revenue.

Invest in hiring now

As inflation cuts into personal savings, construction companies may see an increase in construction worker applicants. To attract potential workers returning to the market, develop active and passive recruitment tactics and streamline interviews to shorten time-to-hire. 

Maximize economies of scale

In any business, there are opportunities to automate processes, which frees up a portion of overhead resources to focus on other tasks. This means that you need fewer workers to complete the same job – without sacrificing project quality. Consider construction software that can achieve this in your back office as well as on the job site with proposal, budget and invoicing features alongside time clock, scheduling and change order management.

Explore new revenue streams

Consider adding new services to your construction portfolio, like home renovation or modular accessory dwelling units. The first option helps build equity for current homeowners while still producing revenue. The second option offers a solution to affordability for home buyers who are unwilling to take on larger project costs or mortgage rates.

“You’ll find some large public builders are investing in affordable housing automation,” Mark said. “I think we’ll see more of these builders get into it, partly because it resolves that labor issue and partly because it introduces another revenue stream.”

Learn more construction predictions and insights

Buildertrend is dedicated to providing you with the latest construction industry trends, forecasts and insights from experts like Mark Boud. If you’re interested in learning more about the market predictions, check out our recent macroeconomic report. 

As home builders and residential remodelers begin to wonder what an impending economic downturn means for their business, one thing’s for certain: the more prepared you are, the more resilient you’ll be. Consider this your guide.