The National Kitchen & Bath Association (NKBA), in partnership with Zonda, explored the future of homeownership during a three-hour virtual event in early August called The Futurist Summit.
The event’s six sessions ranged from an overall look at the state of the housing market and wider economy with expert analysis from Zonda chief economist Ali Wolf to the rise of build-to-rent housing and other rental shifts with Timothy Sullivan, senior managing principal at Zonda.
Moderated by NKBA CEO Bill Darcy, the third session, “Market Insight: An In-Depth Discussion,” provided deeper insights into the current economic state of the country and how it relates back to housing. Wolf and Todd Tomalak, principal, advisory of building products at Zonda, addressed Darcy’s questions live, which included reactions to the Fed’s recent rate hike, breaking down recession rumors, and what’s ahead for the rest of the year into 2023. Here are five big takeaways from the discussion.
1. It’s not a recession yet: “I think one of the important things to remember about a recession is since the 1980s the definition has not been two consecutive quarters of negative GDP growth even though that’s pretty widely cited,” says Wolf. “The definition is a significant decline in economic activity spread across multiple sectors lasting for more than a few months.”
She continues, “I don’t think we’ve actually felt the full effect of any kind of recessionary environment yet. Obviously, housing activity has slowed pretty considerably, but if you look broader in the economy, we’re only in what I would say are some of the early innings of how a recession ultimately progresses.”
2. Expecting a softer market next year: Although it’s complicated to predict, based on the current data, Wolf expects next year’s market to stay on the softer side. “We’ve hit a little bit of a bottom for now,” she says. “Our activity shows sales back to 2019—in some markets 2018—and we haven’t seen that drop dramatically worsen. Our belief is that this year, when we look to our forecasts, we have the most dramatic drop in 2022.”
3. More buyers exploring rentals: As home prices and interest rates rose, buyers that were looking at renting versus owning may have leaned to rent in the near term to see how the market fares, with single-family build-to-rent especially strengthening the rental side.
“But what we’re also watching is if we do see a period of prolonged job losses, rental isn’t immune,” states Wolf. “The rental market will slow in the same way that you would see in the for-sale market, but that needs to be a more dramatic shift in the broader economy to see that happen.”
4. Affordability factors go beyond the pandemic: Land, labor, regulation, and NIMBYism have all contributed to higher home prices. Wolf poses the question, “We know that the pandemic drove up home prices, so if all of those trends revert back to where we were in 2019, do we see home prices just come down? Maybe the supply chain gets a little bit easier, and maybe some of those pandemic-induced changes get a little bit better, but we still have these long-standing issues in the market.”
5. Remodeling market sees increased financing: Based on a recent survey, Tomalak says over half of today’s remodeling projects are being funded by some form of home equity.
“I don’t know that we’ve ever seen that many projects funded by home equity, so that says a lot,” he says. “Part of that is likely due to the fact that people are living in their homes a little bit longer, which means they have more equity. What’s also interesting is that there’s a lot more credit in general; we’re seeing a lot more projects being funded by credit card.”
