Economist John Mitchell usually wraps up his economic forecasts with the caveat that a “black swan” (an unpredictable or unforeseen event, typically one with extreme consequences) could always occur and disrupt the market. Well unfortunately we experienced the wrath of the black swan in 2020 and with one month of 2021 under our tool belts, it is obvious that this experience will continue for the remainder of this year.
Prior to the COVID-19 pandemic, the economy was strong; we were experiencing the longest economic expansion on record, having 128 straight months of growth since the Great Recession. We all knew a correction was coming, it was only a matter of time.
We are not expecting this period of correction to last long. The National Home Builders Association’s (NAHB) Chief Economist Dr. Robert Dietz delivered an economic forecast to the federation and stated that “the overall macroeconomic outlook is expected to improve this year, with gains for GDP growth (after an estimated 3.6% drop for 2020) and incremental labor market improvement yielding an unemployment rate approaching 5% during the second half of the year.”
Locally, it appears as though Clark County is faring better than other counties in the Portland Metro area. During the BIA’s Housing Market Forecast, Housing Market Expert Todd Britsch described Clark County’s net job loss as 48 jobs for 2020. Comparatively, Clackamas County experienced a net loss of 15,400 jobs, Washington County a net loss of 21,300 jobs and Multnomah County a net loss of 63,500 jobs. Not surprisingly, job losses from service industries have not recovered due to continued gathering and in-person dining restrictions. Thankfully, construction is recovering at an impressive rate of 97.5%.
Due to stay-at-home orders, it’s no surprise that more people are interested in purchasing or remodeling their homes. Spending more time at home, low interest rates (to remain low throughout 2021 and likely 2022) and the need for more space are all factors working to increase the demand for home purchases and remodels. As a remodeler, I can personally attest that we have seen an increase in demand for remodeling projects.
For home purchases, NAHB has reported the share of Americans who are considering the purchase of a home in the next 12 months was 15% in the fourth quarter of 2020, four percentage points higher than a year earlier and the largest year-over-year gain. This is perfectly illustrated in Clark County as we’re experiencing a hot housing market.
For resale inventory specifically, it seems the best-selling price range sits between $350,000 and $450,000. We believe 2021 will continue to be a sellers’ market.
We anticipate the demand for purchasing a home will remain robust throughout 2021 but inventories are lean. In 2019, Clark County had 4.3 months of spec inventory but now we’re sitting at only 2.1 months of inventory. What is interesting is that price points with the most inventory (more than two months) is at the lowest and highest points of the market: $200,000 and below and $1,000,000 and above.
It’s clear we can’t build homes fast enough to meet demand, largely due to backlog caused from the work stoppage in March and the supply chain issues as a consequence of the pandemic.
Understandably, the BIA is always concerned about housing affordability. While Clark County is experiencing smaller price increases than other counties in the Portland Metro area (Clark: 3% increase, Clackamas: 11% increase, Multnomah: 8% increase and Washington: 14% increase), the continued demand, subcontractor backlog, supply chain issues and available land supply will all threaten to price individuals out of buying a home in the months ahead.
For example, the BIA reported in August 2020 that lumber prices have increased home prices by $16,148 per house. This results in 12,612 Clark County residents being priced-out of a home purchase. While lumber was very volatile in 2020, we are bracing ourselves to see higher prices in 2021.
Perhaps our saving grace in Clark County is the amount of medium density housing being developed. We reported in January that townhome permit issuance from 2019 to 2020 increased by 66%. With prices of attached homes sitting between $315,000 and $397,000, this offers a more affordable option for first-time buyers that want to migrate out of apartments but can’t afford to purchase a single-family detached home. We expect to see more permits and sales of attached housing options as the housing affordability crisis continues.
As Todd Britsch illustrated in his address to our members, it is unlikely that we will experience a burst in a housing market bubble. He stated that some areas are more at risk than others, specifically those with forbearance rates of 8-12%. Luckily, we are hovering around 5-6% and the likelihood of mass foreclosures in the future is low.
What would a construction forecast be without mention of the nonresidential construction sector? The most recent Senior Loan Officer Opinion Survey data shows banks are reporting weaker demand for commercial and industrial loans from firms of all sizes but stronger demand for credit card loans, auto loans and most categories of residential real estate loans. Banks tightened standards and reported weaker demand across all three major commercial real estate loan categories. This is likely in response to lifestyle changes brought on by the pandemic and the uncertainty of what the new normal will look like.
Finally, with the current state of the economy and government budgets shrinking it’s hard to say how new and pending public projects will fare in the near future. If funding cannot be achieved, we may see more potholes on the road and less improvements to public schools. Although, we sincerely hope that is not the case as the desirability of our local housing market relies on sound infrastructure.
Dave Myllymaki is the 2021 BIA president and owner of ReNew Creations LLC. He can be reached at email@example.com.