Is inflation going to get worse?
It will be mixed depending on the industry. Wages and the supply chain are the top things to keep an eye on. If wages are increasing, that puts pressure on production and manufacturing values increasing, which in turn increases inflation. Expect between 3.5% to 7% inflation over the next couple of years.
Where will interest rates end up next year?
When we look at the point of view the Federal Reserve has taken, we don’t see interest rates above 3.5% to 3.75% by the end of 2022. However, 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.
When will we have enough housing production capability in our Texas metros to meet demand?
About 1.5 to 2+ years out, and even then we might be short. With labor as the main reason, part of this is a smaller labor pool, and the other is the challenge of COVID variants impacting workers’ lives.
What about ranches and land sales?
We saw a dramatic slowdown in the first six months of 2020 from previous years in Texas. Yes, it was COVID-related, but the oil wars and WTI per barrel dropping to -$32 a barrel didn’t help. Ranch buyers disappeared on the first of 2020.
However, the second part of the year had record values due to families buying rural properties to escape the larger metros on the weekends. These purchases were driven by those families not interested in selling their primary residence and wanting a secondary or tertiary place to go with limited options because of COVID.
Land sales in Texas have been robust due to the lack of inventory in so many channels. 2022 should be more of the same.
Will we see double-digit price growth for next year?
Nationally no. Some forecasters are calling for 10% to 12% home price growth in 2022 over 2021, but it will be somewhere between 4% to 7% nationally.
Closer to home, Austin, DFW, and San Antonio high single digits to possibly low teens. Houston, still recovering from the 370,000+ jobs lost in 2020, will be 4% to 6%. Also, keep in mind that labor and material costs are rising 3% to 4% a month presently. That won’t slow down immediately. It may take a few years to address the supply chain and labor issues.
To help affordability, will we see a 40-year mortgage in the next five years?
The markets have become accustomed to low rates over the last 20+ years, so we do see it entering discussions to help with affordability.
What are some other affordability challenges?
One of the reasons that sales and rental values are continuing up is the lack of supply.
Nationally, regionally, and locally we must increase the housing supply.
There is a need to recruit and train workers for residential construction to do so. Not only teach these trades early in the educational process but start internships while they are in high school.
Improve zoning and land development approval processes to enable more lots in a quicker time frame.
Improve the building material supply chain, including a new softwood lumber agreement with Canada.
Reevaluate all tariffs on goods.
Will job and population growth continue to fuel the Texas regional market?
We believe so. Close to year-round lifestyle meets relative affordability, lower taxes, warm weather, and job opportunities.
We believe that Texas is where California was in the early ‘50s; cheap land, cheaper workforce, higher educated workforce, lower cost of living, and fewer taxes and regulations.
Will the majority of supply chain challenges be gone in six months?
Unfortunately not. We expect to see parts of the supply chain improve while others remain challenged on a rolling basis throughout 2022-24. Expect disruptions related to material
availability and higher costs next year in all channels.
What issues do we need to be aware of over the next couple of years and further?
Lack of buildable land- Because there is a demand for developed land, (so much capital is chasing and acquiring parcels in the main counties of our Texas metros and surrounding cities), driving land values above substantial values, as well as potentially decades supply of paper lots.
Affordability- With materials and labor continuing to escalate by 3% to 4% a month. With rates scheduled to escalate through 2022. With the aforementioned cost of land, affordability will continue to be an issue. Every time the rate goes up 1%, the consumer loses 12% of buying power.
Aging demographics- Economic history shows us that the national and global populations have always increased.
Virus surge- Every time we have a virus surge, it slows the economy and destroys consumer confidence.
Hopefully, this analysis will help home buyers and sellers prepare for the current and future housing market status.
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