A bounce in homebuilder sentiment as 2023 comes to a close along with tailwinds of both moderating mortgage rates and still-recovering housing supply is laying the foundation for a strong homebuilding market in 2024, according to NAHB CEO Jim Tobin. With fewer homeowners willing to upgrade amid low mortgage rates, Tobin sees homebuilding as “the only game in town” right now.
Tobin notes this demand/supply mismatch creates opportunity for builders to ramp up construction, eyeing 4-5% homebuilding growth in 2024 as the Federal Reserve signals potential rate cuts. However, Tobin still cautions that headwinds persist from construction labor markets being “consistently underemployed.”
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Video Transcript
JOSH LIPTON: Lots of new housing data out today, possibly laying a strong foundation for homebuilders. Housing starts hitting a six-month high and coming in higher than expected. Builders sentiment is up in December as mortgage rates come down, according to the National Association of Homebuilders.
Joining me now is NAHB CEO Jim Tobin. Jim, it is great to see you. A stat that obviously stands out, new home construction soaring, Jim, nearly 15% in November. You know, Jim, I look at the 30-year fixed, we're at 6.64%, certainly better than where we were. But if you're locked in at 3%, Jim, that's not getting you to move. If I was at 3%, I wouldn't be going anywhere either. So I would expect inventory stays pretty limited here, Jim. I mean, the backdrop seems pretty constructive for homebuilders as we head into 2024. What do you think?
JIM TOBIN: I think you're absolutely right. At the end of the day, new homes are the only game in town because of that rate lock. And as much as we are thrilled to see rates retreat from 8%, if not 7.5% and get down into that 6% range, you do have a lot of homeowners sitting in 3% or 4% mortgages. And they're not going to be ready to move yet, which, again, that gives us an opportunity to start building to capacity and more importantly, start building to demand and making new homes. Really the only game in town, if you're in the market, to buy a home right now.
JOSH LIPTON: And, Jim, so look ahead to 2024, what kind of growth do you see for your industry, Jim? Can you quantify it for us? And I'm also interested, you know, what kind of homes do you think are to be in demand?
JIM TOBIN: Well, we're predicting a 5-- 4% or 5% increase in home construction next year. And that is largely due to what we believe will be continuing falling rates. You know, just last week, the Federal Reserve not only talked about no more rate hikes, but they've actually telegraphed three rate decreases in 2024. That's one more than we had forecast. So we're really looking to accelerate into the second half of 2024 with home construction.
But when I think about where we're headed, I really think that it's going to be on that moderate-sized home. We have seen home sizes, square footage trend downward, as interest rates have crept up. So as interest rates are still-- they're historically low. But for over the last 10 years, they're higher than they have been. I do think we're going to see a trend to smaller homes that help people afford home ownership.
JOSH LIPTON: And, Jim, as you look across the country right now, when you look at activity, where are the hotspots, Jim, regionally right now?
JIM TOBIN: Well, it's in your high-growth states, which has traditionally been the Southeast. And I'll throw Texas into there, even though they're a little bit more West, obviously. But Florida, the Carolinas, Alabama, and Texas, and then you start working your way into the Nevadas and the Arizonas, of course, those are really been the hotbed of construction across the nation over the last several years. Remodeling, that is going to be in your older-- your older states, like New England or the upper Midwest. You're going to see remodeling activity more important capacity there.
JOSH LIPTON: And, Jim, so we've talked about these tailwinds for your industry. Let's talk about some potential challenges as well. I'm really curious, Jim, to find out about labor. Are home builders right now-- are they able to find and hire all the workers they need?
JIM TOBIN: No. For the past decade, we have been consistently underemployed in the construction sector. It usually month-over-month, according to federal government data, we're about 400 workers short in the construction industry, which, of course, just delays home construction but also adds to the cost of labor. So for us, it's about getting more youth into an aging workforce and getting more parents pointing to their kids to the trades is a great career in America, where you can earn a good living and you can and you can help build the American dream. That's one of our headwinds.
The other big one is the availability of lots. As homebuilding gets going, land availability will get more scarce. We need local governments to really step up and help us meet demand in home construction by making sure that they are opening up affordable pieces of land for us to develop. And then finally, the last piece the big headwind we're worried about is if we do start accelerating into '24 and then really pick up in '25, are the supply chains fully healed from the pandemic? Or are we going to see a spike in gypsum and wallboard? Are we going to see a spike in lumber and copper, those critical building materials that help us build an affordable product? And then, obviously, that brings inflation back into the equation.
So while we feel some tailwinds with rate cuts coming, we are mindful of some of the headwinds out there ahead of us.
JOSH LIPTON: And, Jim, I want to get you out of here with a question on politics. I know you all had a strong relationship with Speaker McCarthy. You've talked about that. What is the relationship like, Jim, with Speaker Mike Johnson?
JIM TOBIN: Well, we have a great relationship with Mike Johnson. Our builders are very close to him from Louisiana. So we've already established a really good working relationship on some key issues, including labor issues and housing policy issues moving forward. We're mindful of a tax bill that could be moving in the first part of next year where we have some priorities potentially there as well.
So we have engaged with the new speaker and his team. And we are really optimistic about continuing a great relationship that helps move housing forward for all Americans.
JOSH LIPTON: Jim, always love having you on, sir. Thank you for your time and insight today. We appreciate it.
