Changes Ahead
Area association leaders share their outlook for 2023.
As we look toward the year ahead, once again BUILD talks with several industry leaders across the state about expectations for the industry and the economy as we enter 2023.
Three years since the COVID outbreak, the construction industry is still recovering, and “normal” is being redefined. On an individual level, we continue to find new ways to interact, to work, and to go about our daily lives.
Those individual changes are also transforming the way we do business and the types of businesses that are seeing phenomenal growth or rapid decline.
Kim Bakey
President, Des Moines Area Association of REALTORS®
Looking back on 2022, Kim Bakey, President of the Des Moines Area Association of REALTORS®, says it was a year of tremendous starts and stops in all segments. “It was like running up a mountain until rising interest rates shifted our direction and brought some normalcy back to the market,” she says.
As the year wound down, the market remained active but less frantic, according to Bakey.
“Many of our members were saying that the sudden slowdown when interest rates began to rise was not necessarily a bad thing. It gave everyone, REALTORS® and clients alike, a chance to catch their breath and not feel rushed. Through it all, though, the market remained strong.”
During the peak months in 2021 and early 2022, Bakey says buyers felt tremendous urgency as a result of the competitive market. Some may have purchased homes that were not ideal for them as a result. “There may be some buyer’s remorse at this point with homeowners who felt they needed to act quickly. Now inventory is staying on the market longer, and it’s giving buyers a little more time to compare and make the best decision,” she explains.
She expects that to continue throughout 2023, with interest rates stabilizing during the second half of the year. “It’s always just speculation to predict interest rates,” she says. “But barring another health or world crisis, we’re anticipating rates to settle in the low- to mid-5% range, which is still incredibly low.”
Bakey adds that interest rates are only one factor playing into buyer decisions. “It’s really all about the monthly payment. Although interest rates are slightly higher, prices were artificially inflated during those peak months, and they’re starting to normalize as well. With slightly lower prices, the mild increases in interest rate don’t have a significant effect on the monthly payment.”
For 2023, the focus is on getting back to basics for the Des Moines Area Association of REALTORS®.
“We’ve had a lot of new people join the ranks over the past couple of years, and we do expect some contraction in the number of REALTORS® over the course of the year,” Bakey says. “It can be tempting to get sloppy when the market is as rushed as it’s been. We want to get back to focusing on our brand and really providing those new folks with the education and support they need to succeed.”
Events this year will address the ever-changing education needs and formats available, developing new collaboration models, and assessing the market to provide long-term support.
“There’s no such thing as ‘normal’ in the real estate market,” Bakey says. “So in that way, this year is like any other. We’re evaluating how long this shift will last and helping our members navigate into the next one.”
Des Moines Area Association of REALTORS®
5950 Village View Drive #100 | West Des Moines
DMAAR.com | 515-453-8491
Krista Clark
President, Iowa Association of REALTORS®
“My word of the year for 2022 would have to be ‘uncertainty,’” says Iowa Association of REALTORS® President Krista Clark. “The year started off incredibly strong, and while there was a general understanding that change was coming, there was uncertainty surrounding what that would look like and when.”
She says the change in interest rates and abrupt change in consumer confidence as a result made it challenging for the industry to adapt and communicate the potential impact to homeowners. “I do believe 2023 will provide a chance for the industry and market to adapt to these changes and regain some sense of confidence for home buyers, sellers, and investors,” she says.
She adds that positive indicators suggest the market will remain stable despite the inevitable slowdown. “I don’t anticipate a significant decrease in property values in the Midwest,” says Clark. “People buy and sell based on more than interest rates. There are lifestyle factors like marriages, children, jobs, retirement. REALTORS® remain informed and ready to help buyers and sellers make the decision that is right for them, regardless of the market we’re in at the moment.”
The uncertainty of the past few years created some disconnect between buyers and sellers, according to Clark, and that is one challenge the association continues to address.
“Sellers have been reluctant to adjust pricing, and buyers have been under the assumption that rising interest rates should bring prices down, so both are waiting for the ‘perfect’ timing,” Clark says. “Compared to the past few years, though, buyers and sellers both have a bit more time to make informed decisions. Educating our clients on those options is key for our members.”
She says the association has some specific goals for 2023 to help empower its members, including encouraging member involvement. “We want to ensure that every member of our association feels they have a home within IAR because we understand that better decisions are made when diversity is at the table,” she says.
The formation of a new NoCoast Multiple Listing Service, a regional MLS, will also provide one platform for all REALTORS® across the state to do business in a more efficient and transparent manner. That’s just one example of how the IAR is narrowing its focus to better serve its members and its clients.
“Identifying our core competencies and building on those enables us to be a valued resource for our members and ensure that every decision we make is driven by what is best for the consumer,” Clark says. “We will continue to work to protect private property rights and are excited to explore opportunities in 2023 to partner with other organizations within the industry to make an impact.”
Iowa Association of REALTORS®
5950 Village View Drive #100 | West Des Moines
IowaRealtors.com | 800-532-1515
Jennifer Coyle
President, Iowa Mortgage Association
Iowa Mortgage Association President Jennifer Coyle says early 2022 expectations were “more of the same” unprecedented loan originations. A mid-February market change had a dramatic effect.
“Mortgage interest rates went from the high 3%s at the beginning of the year to as high as 7.625% at the beginning of the fourth quarter,” she says. “In mid-February, in less than 60 days, it went up close to 2%.”
That caused potential buyers to hesitate “because low inventory had already been causing list prices to climb out of range for some buyers,” says Coyle.
The frantic pace of the past two years began to ease, although the interest rate change was less a warning bell than a tap of the brakes.
“I don’t sell based on interest rate with borrowers,” Coyle says. “We talk about desired and maximum payments they can qualify for. Although the increased rates may have affected some homebuyers’ choices, we also want to focus on long- and short-term goals to make choices that are best for their overall financial picture through debt restructure.”
In fact, she says the average interest rate over the past four decades has been 7.75%, so even if rates continue to rise slightly in 2023, Coyle expects them to remain below that number.
“The Mortgage Bankers Association (MBA) expects fewer projects in 2023 than we saw last year,” Coyle says, “but people will still buy homes. We anticipate the median home price to decrease by about $10,000 also by the third quarter of the year, then start rising again as we enter 2024.”
Although the remodel sector is also expected to remain strong this year, Coyle says both new construction and remodel projects will face similar challenges. “Material cost increases affect everyone. They seem small when you look at individual items, but those little pieces add up to a lot and can have a significant effect on the final project cost.”
Finding the labor to complete those projects will also continue to be an issue. “One of the biggest pushes in my local builder association is trying to get young people into the trades,” says Coyle. “A lot of high schools are starting to offer programs through the local community college to combine high school diploma and trade certification at the same time.”
Education is also a primary focus for the IMA, with unique training events scheduled at this year’s two annual conferences. “Our education committee is coordinating several events at our spring conference, as well as our standing Mortgage Bootcamp,” Coyle says. “We gear this toward new mortgage professionals to give them resources from more-experienced loan officers so that they have the skills and knowledge to succeed.”
Those are tools that are especially important in a rapidly changing market.
Iowa Mortgage Association
8901 Northpark Drive | Johnston
IowaMA.org | 800-532-1423
Jeff Ellis
President, Home Builders Association of Greater Des Moines
Looking back on it, Home Builders Association of Greater Des Moines’ President Jeff Ellis says, “The past two years have felt like we were running a marathon at the pace of a sprint.”
The sudden slowdown during the last quarter of the year, however, brought a different challenge, forcing builders to adjust pace almost overnight and make difficult budget decisions.
“Overall, the year played out better than I would have thought,” Ellis says. “I assumed materials prices would remain high. But we actually saw some relief there at the end of the year. And the slight rise in interest rates helped ease the pace a bit.”
Ellis says he has heard predictions about increased interest rates through 2023, but he remains optimistic. “If only I had a crystal ball,” he says. “My thought is that building a home will never be cheaper than it is today. I would say, build the house or do the large remodel and refinance when rates rebound.”
Ellis does expect the slowdown that began late in 2022 to continue into 2023, but he does not anticipate a significant decrease in projects. “Home buyers will become comfortable with the rates and get back to building and buying,” he says. “I expect remodeling to continue to flourish in 2023.”
One reason for that strong remodel market is the long-term effect of pandemic life. “The pandemic taught us a lot about how we can better use our homes,” Ellis says. “People took up new hobbies, started working from home, spent more time with families. All of those led to remodel projects, like home offices, entertainment areas, hobby rooms, and outdoor living spaces.”
As it has been for years, one of the greatest challenges facing the home-building industry is navigating the economic factors affecting day-to-day business. “The greatest challenge is still finding skilled labor to hire,” Ellis says. “But the greatest advantage we have is looking to the future. History tells us the construction industry will lead America out of the recession, and that is exciting to think about.”
Heading into 2023, the HBA of Greater Des Moines will be putting its efforts into the skilled-labor shortage, educating customers on the factors affecting their projects.
“I want to get student groups involved in our HBA programming this year and educate parents on the benefits of the trades so they know all the great options for their kids,” Ellis says. “I think the biggest challenge facing our industry over the past few years has been the materials shortage and lead times. We have had to be nimble and change the way we do things and try to maintain a reasonable schedule. That’s something we have to keep educating our clients about as we navigate the future.”
Home Builders Association of Greater Des Moines
6751 Corporate Drive | Johnston
DSMHBA.com | 515-270-8500
Nick Lindsley
President, American Institute of Architects Iowa
“In general, 2022 remained busier than anyone expected,” says AIA Iowa President Nick Lindsley. “In all segments of the architectural industry, members were busier than ever.”
Although the industry as a whole saw the same dramatic increase in work, one segment of commercial architecture stood out. In 2022 the renovation market actually outpaced new construction. “According to AIA statistics, for the first time ever, we saw more renovation projects than new construction projects in the commercial market,” Lindsley says. Whether that increased pace is related to the high cost of land or the growing emphasis on sustainability, “Innovations in sustainable construction practices have been growing for several years, and that will continue into 2023,” he says.
Some of those trends are closely tied to market sectors as well. “Public projects versus private development can affect those design trends,” he explains. “Public projects have different regulations and requirements, especially related to sustainability and energy efficiency. The availability of grants and government funds for public projects is directly related to the types of projects being built.”
Those trends in commercial design are carrying over into the residential design segment. Lindsley says, “Quality over quantity has always been a philosophy in the architectural field, but that’s becoming an emphasis in the residential field, too, as land and material prices keep climbing.”
Even custom home projects are trending slightly smaller, Lindsley says, with a focus on efficient, high-quality design rather than larger footprints. “There’s been a big push in the commercial side to find ways to address the challenges the industry faces as a result of inflated material costs.”
He says AIA Iowa is entering the second year of its new strategic plan. The focus areas are public awareness; future architects; and diversity, equity, and inclusivity. “As an industry, architecture has historically not been a field that drew a diverse group of young people. We’re active in a number of initiatives to change that and introduce the industry to a new generation of students.”
Iowa’s Bee an Architect Activity & Coloring Book (see BUILD, May 2022) was such a popular feature in that educational effort that a Spanish edition is now in production for distribution early this year.
“A big goal is to introduce architecture to students in communities who may never come into contact with an architect,” says Lindsley. “Many of our members are actively involved in mentorship programs to introduce high school students to the field, as well as to smooth the transition for architecture students as they move from school to practice.”
Introducing the architectural field to the next generation in every community is an important part of that emphasis on sustainability for both the industry and the environment.
American Institute of Architects Iowa
400 Locust Street., Suite 100 | Des Moines
AIAIowa.org | 515-244-7502
Aaron McGlynn
President, Home Builders Association of Iowa
“I think 2022 played out much like people expected,” says HBA Iowa President Aaron McGlynn. “But builders and suppliers were much more prepared and ready to adapt than last year because we knew what to expect.”
McGlynn says he expects 2023 to be another strong year for the industry, despite some predictions of a slowing economy.
“I always feel like Iowa in general is insulated from the big swings that may be seen nationally. While climbing interest rates may slow down a large production builder, custom builders seem to pull through fine. That being said, rising interest rates and prices have made it tough for first-time home buyers and buyers looking to upgrade.”
He says the Des Moines metro area remains a hot spot for home construction nationally. His own experience indicates that the eastern side of the state is seeing consistent growth as well.
“I think the greatest challenge for the industry right now is affordability. The high demand and limited availability the past year or so has created a huge challenge for home buyers,” he says. “On the flip side, anyone interested in getting started in the trades has a real advantage because there are so many opportunities.”
He says anyone who has been in the industry for more than a few years has had to make some significant adaptations to handle the workload and the unpredictability on the supply side.
Lead times have been almost laughable at times,” he says, “and in some cases, a few good laughs are what it’s taken to get through a project.”
Supporting builders and remodelers in such a crazy market has been challenging, but McGlynn says the HBA of Iowa has made that a priority.
“We’re lucky to have an amazing association with representation from all across the state. Our local and state officers keep us in the state and national spotlights. Our priorities for 2023 will be working on legislation that makes sense. We want to work with municipalities to find solutions for building practices and codes that don’t continue to drive up the cost of housing.”
Encouraging industry involvement from young people is also a key priority. “We’re already doing great things, but we can be even bigger and stronger with member engagement. We need young members to get involved and be passionate about the industry they’ve chosen. We’re also continuing our efforts promoting the skilled trades with events like Build My Future.”
Although the need for skilled trades remains crucial, McGlynn says he sees hope. Community colleges, employers, and state and national leaders are getting the message, and options continue to expand. “Over the past few years, we’ve seen the gap between Career Technical Education (CTE) programs and traditional liberal arts programs slowly closing,” he says. “It’s amazing.”
Home Builders Association of Iowa
400 East Court Avenue, Suite 240 | Des Moines
HBAIowa.org | 515-278-0255