At the WDMA 2021 Fall Conference, Kermit Baker, Chief Economist for the American Institute of Architects (AIA), took a look at several key leading indicators for the commercial and residential markets. The research helps provide a window into the factors influencing the current market, as well as insights on what will come following the COVID-19 pandemic.
In 2021, the home building market witnessed a growing demand of homes that coupled with a low inventory rapidly pushed up house prices. In turn, the rising prices made homeownership unaffordable, particularly in key coastal markets. In addition, the rampant inflation made it more expensive to build homes and rising mortgage rates continued to make it more expensive to buy them.
The year 2021 also saw problems with cost and availability of construction materials that seemed to be caused by supply chain issues, and that made some products available only with extremely long lead times. Another area creating difficulties was the emerging construction labor shortage. This problem can be attributed to the global pandemic, which made a lot of people re-think their career paths and induced early retirements.
But despite the highlighted issues, the housing demand continued to see improvement at the end of 2020 and increased even more this year. House prices fully recovered from the housing crash, and continued to see surprisingly strong gains. In addition, strong growth is expected to continue as households look to their homes for additional functions.
Residential Outlook For 2022
The residential sector outlook includes single-family construction, multi-family construction and home improvements. In 2021, the major housing market indicators proved to be generally very positive, with an increase in multi-family housing spend compared to 2020, growth in home prices as well as retail sales (building material and supply stores).
At over $400 billion a year in spending, the residential home improvement market size competes with new construction. Recent strong sectors reflect the changing use of homes during the pandemic, with outdoor living spaces, home offices, and in-law suites as the top list of most popular improvement projects.
Commercial Sector Outlook For 2022
While building sector has been weak, housing has traditionally led a broader construction recovery. In 2021, institutional categories accounted for over half the spending on nonresidential buildings – healthcare, education, religious, public safety, amusement and recreation.
Most existing buildings will require significant retrofitting to meet emerging client and employee concerns in a post-pandemic environment. In fact, surveyed firms reported that work on existing buildings has increased with the pandemic, specifically those projects dealing with renovations, rehabilitation, retrofits, and historic preservation. The pandemic is also upending traditional real estate patterns, opening the door for new business models and design opportunities.
In the residential sector, leading indicators of remodeling activity point to healthy spending on owner stock over the coming 12 months, with an 8.5% Moving Rate of Change. In addition, the housing starts –an economic indicator that reflects the number of new houses on which construction has been started in a given period – should remain in the 1.6 million / year level for a while, which should help to moderate house price inflation.
Construction spending declines are expected this year, before starting to recover in 2022 across all sectors. In the commercial sector, hotels are the ones whose spending is expected to positively increase by 18.9% in 2022.
In the institutional sector, the hardest hit segment by far is the amusement and recreation spaces, which are dependent on gatherings and large crowds. This dropped by 9.9% in 2021. However, this area is excepted to actually increase by 6% in 2022, as more vaccines become available to the population and places continue to open up. The health and education segments are also forecasted to recover, with a respective increase of 4.4% and 3.6% in the coming year.
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