Supply chain choke points, unpredictable inflation and general uncertainty around the future of the pandemic are enough to make anyone scratch their heads and wonder what’s going to happen over the next year. Zonda ’s chief economist Ali Wolf spoke with Livabl about the difficulties of forecasting the future and the outlook for the North American housing market in one of the most challenging economic climates in history.
What sort of things is a housing-focused economist thinking about these days?
Ali Wolf
There are some big issues in getting new homes built. There are the issues and delays from governments and municipalities – we have land and lot challenges. Builders want to build more homes, but they don’t have developable land. Labour is an issue, like every industry, but I think it’s more pronounced in the housing market because of how well it’s been doing. We already had a labour shortage before home sales shot up last year, now it’s even more dramatic. And then you have the supply chain.
Let’s talk about the supply chain and the non-stop media hype about boats sitting off the coast of California full of toilets and microwaves. Is this a real thing?
If anything, concerns about the supply chain are under hyped as they relate to new home construction. Ninety per cent of builders say it’s a serious challenge and will affect their ability to build and deliver to customers on a tight schedule. It’s really become this headache where builders are slowing sales because they can’t build fast enough, yet they become the villain in the scenario if they don’t deliver on time. That’s lose-lose.
What are builders supposed to do in that kind of world?
I think builders have become a lot more savvy about understanding they can under promise and over deliver. They know it’s going to take longer and are trying to communicate this with buyers. You do hear a few stories about costs going up so much that builders cancel a project and resell it at a higher price – these are alarming stories that spread quickly but I don’t think that’s a major issue. The main thing is that timelines are getting a bit longer.
Is inflation here to stay or should I just take a deep breath and buy some lumber when the price comes down?
The problem with inflation that every single human should acknowledge is that nobody knows what’s going to happen. Economists and analysts are taking their best guesses about what it means to the housing market, but so much depends on how policy makers respond, how investors respond to policy makers and how that translates into costs. It makes forecasting difficult.
Housing prices in Canada have been going up like crazy. How important is affordability to any sort of post-pandemic recovery?
I have a friend in Vancouver who wants to move up, but inventory is scant and it’s impossible to compete. Affordability is everyone’s top concern – economists, policy makers, everyday Canadians. It’s really something that could limit growth on home sales and could also keep market prices high. It’s tricky with a limited inventory and that’s a long-standing challenge in the housing market.
What keeps economists up at night at the end of 2021?
The intersection of supply chain problems and inflation. What I think is unique about today’s environment is that there have been a lot of “unprecedenteds.” The government support, inflation, an unprecedented boom-bust-boom in the housing markets.
Wouldn’t that make this the best time ever to be an economist?
No experts have lived through any combination of these things. Nobody has a sense of how the next couple of years might unfold. You try to use logic and track stats daily, to think through cause and effect. But it makes it all very difficult – especially during a pandemic.
What gives you the most economic hope?
The consumer. Some spending is lost spending – you can’t make up for restaurants you didn’t visit so that spending is lost forever. But so many people haven’t connected with friends or family in person. They still want to take trips, to go out. Assuming we can get some normalcy and learn to live with the virus, a lot of consumer spending should show up in different places in the economy and that will affect different businesses. I’m interested to see how this unfolds.
