We all know it’s really anybody’s guess as to what the future holds. However, Ali Wolf, Zonda’s chief economist, and Danushka Nanayakkara-Skillington, NAHB’s assistant vice president of forecasting and analysis, are in the business of anticipating what comes next. As a new year approaches, it seemed fitting to ask the two of them various questions—answered in a yes-or-no format (with the exception of a couple that had Wolf split)—on topics that pertain to the housing industry to get a sense of what to expect in the coming months.
It may be an American conversation, but the topics resonate on both sides of the border.
We asked our forecasters to give us their top three reasons housing is booming right now, and one response was given by both: demographics. Wolf also points to the ability for many to work from home, in addition to low interest rates, while Nanayakkara-Skillington references the housing deficit and effects from the COVID-19 pandemic, which created a renewed interest in housing.
Will the boom continue, or will builders start to see business plateau? Read on to find out what topics need to be on your radar and which ones you can perhaps worry about a little less.
Q. Will there be a recession in 2022?
Wolf: No. Our base case is an economy that is growing at a decelerating pace compared with the rate we are used to over the past 18 months. There are risks though.
Nanayakkara-Skillington: No. We expect 3.9% GDP growth for 2022 [for the US].
Q. Is inflation going to get worse?
Wolf: Yes and no, depending on the category. Some industries will see relief while others see continued rising prices. Wages and supply chain are the top things to watch.
Nanayakkara-Skillington: Yes, for a little while until supply-chain bottlenecks are sorted out but higher (2.7%) than the average we’ve been used to (1.8%).
Q. Will we continue to see upward pressure on wages?
Wolf: Yes. Early signs from pulling away the extended unemployment benefits are resulting in a slight increase in applications but not a full snapback. Workers have all of the power today with record-high quit rates and a small pool of alternative employees for employers. Bigger companies that are willing to offer higher wages and competitive benefits are making it difficult for other companies to avoid raising wages if they need workers.
Nanayakkara-Skillington: Yes, due to scarcity of labor (supply is less demand). We expect the unemployment rate to go down, productivity gains because of a hybrid work model, and broad-based inflation measures.
Q. Will US interest rates be above 3.5% at the end of 2022?
Wolf: No. Our base case is that interest rates hit 3.5% at the end of the year, but we are tracking to see early signs of how the Fed tapering is received by investors and watching how inflation plays out to determine if we need to move our forecasts higher in the coming months.
Nanayakkara-Skillington: Yes. We are forecasting a little over 3.7%, which will increase affordability issues.
Wrap-Up → Top 3 Risks for the Economy
1. Stimulus cliff: The economy notably slowing in the absence of monetary and fiscal stimulus.
2. A misstep from the Fed: Policymakers are doing their best to navigate today’s environment, but we are living through unprecedented times.
3. Inflation: If higher prices stick with us longer than anticipated there will be wide-reaching impacts, including higher mortgage rates.
1. Virus surges (at the local level).
2. Labor shortages (and workers on the sidelines).
3. Housing affordability issues.
Read the rest of the interview at Builder Online.