In-Depth / April 2024

Planning for Good Times

By Tracy Dickinson

Builder Developer Luncheon offers reasons to celebrate.

Early last month, Peoples Company hosted its much anticipated 17th Annual Builder Developer Luncheon in West Des Moines.

The event was well attended, as always, and packed with valuable information for anyone involved in home construction or land development in central Iowa.

This year, Peoples brought in four speakers, whose topics ranged from a broad overview of the housing market to a detailed look at the metro from Peoples Company’s Kalen Ludwig.

As the view narrows from the national to the local, the positive signs increase, which Ludwig likened to a party on the horizon. If she’s right, the party is confirmed. The question is how and when to join in.

The Big Idea

CoreLogic Chief Economist Selma Hepp opened the presentations with a look at the national economy and housing market.

“We have a strong labor market right now, which is fueling wage growth, and that’s a good thing,” she said. “But that has also kept home prices high. That, along with persistent inflation, is keeping the market stagnant right now at all levels.”

Hepp said most economists expect the Federal Reserve to reduce interest rates again by midyear to encourage more activity, but the upcoming elections could affect how much movement actually occurs.

“Mortgage rates could potentially decline to below 6% by the end of the year, which would bring us back to 2008 range,” she said. “Supposedly 5% is the rate that unlocks the market to really get things moving again, and we aren’t likely to see that this year.”

According to Hepp’s statistics, nearly 90% of homeowners currently have a mortgage rate at or below 5%, which is holding many potential buyers from pursuing a move. “When it’s cheaper to stay and keep their current mortgage, homeowners are not inclined to enter the market,” she said.

Add to that a trend in single-family home sales to investors, and the low supply becomes even more significant and the rise in prices more likely.

“Iowa’s home prices remain moderate, compared to many other areas of the country,” Hepp said, “and price increases should slow down through 2024.”

Some of the factors driving those price increases on top of land and material costs include migration from more expensive markets, desire for amenity-rich communities, and increased buyer equity.

The big idea, in looking at the 2024 forecast, comes down to pace. “Home prices will continue to increase, but at a slower pace. Interest rates may drop a bit more, but gradually. And we may see more buyers cautiously enter the market as those other factors come into play,” Hepp said.

The Guest List

Every party is as good as its guest list, and the Builder Developer lunch featured two A-list guests from central Iowa. Adam Farver, Pella Corporation Chairman of the Board, offered “A View of the Housing Industry through a Pella Window,” and Greater Des Moines Partnership President & CEO Tiffany Tauscheck gave the audience a glimpse of the many exciting projects in the works around the metro area.

Echoing Hepp’s overview, Farver said, “The economy and the housing market is very cyclical, so we have been here before. What we’re facing today isn’t all that different from what we’ve faced in the past.”

As a company nearing its 100th year in business, Pella Corporation has made it a priority to adapt, and that century of experience sets a valuable example for others in the housing industry. In navigating the current economy, Pella continues to focus on meeting the needs of its employees, honoring the goals of its shareholders, and leading the industry in product quality and innovation.

“We want homeowners to seek out Pella products,” Farver said. “Because of that, our products are available through more channels, from direct sales to big box stores, professional dealers to large builders. We are the only window manufacturer that is available in every zip code in the U.S.”

The company continues to monitor the economy and its effects on the housing market, including rising prices for glass and other commodities. But Pella Corporation is also staying ahead of trends that will affect both demand and design in the future.

“Home design is changing, with homeowners wanting more flexibility of space within the home and bigger views,” said Farver. “Both of those demand innovation in window design. And the increased demand for lower price points, build-to-rent properties, and tiny homes requires a range of product options to fit those markets.”

The Greater Des Moines Partnership, like Pella Corporation, prioritizes the needs of the people it serves. Tauscheck said listening to its thousands of regional members has led to a renewed strategy for the organization.

“Our five-year strategy includes economic development, talent development, and positioning Des Moines for the future, among other things,” she said. “For 2024 specifically, we are working on career fairs, a national marketing campaign to draw talented workers to the area, and a number of placemaking projects that will enhance the quality of life for residents.”

Tauscheck said younger individuals who relocate to Iowa do so for the quality of life and the career opportunities, but an increasing number of retirees are moving to Iowa communities in order to be near families and grandchildren.

“The Capitol Crossroads roadmap focused on housing and education during its first few years, and we continue to prioritize projects that create that sense of place and the connection to the outdoors,” she said. “We’re also looking at the great opportunity communities have to attract baby boomers, to create amenities that enhance their quality of life in addition to their proximity to family.”

She said Iowa continues to lead third-party rankings of livable communities. The Greater Des Moines Partnership exists to make sure the region remains not just a good place to work, but a great place to make a life.

As Farver said, “The work we do is important. Shelter is one of the most basic needs of every human being. Building shelter—being part of that process—is a noble endeavor.”

The Detail

Peoples Company’s Kalen Ludwig concluded the presentations with a look at local statistics.

As she said, “Maximizing opportunity is what it’s all about,” whether it’s a party or a business plan. And the 2024 housing market shows early signs of ending the year on a celebratory note. “Timing is everything,” Ludwig said.

The first quarter of 2024 showed slight improvement over 2023, but with inventory still well below desired levels. “A six-month inventory is considered ideal for a strong market,” Ludwig said, “and the metro has been below a three-month supply since 2016. Total units sold in 2023 was the lowest we’ve seen in a decade, although new construction sales actually exceeded the 10-year average.”

Echoing Hepp’s analysis, Ludwig said that sale prices seem to be stabilizing, which is an encouraging sign. “The average resident can’t afford the average-priced new home right now,” she said. “The cost of the average home has nearly doubled in just two years, pricing many potential buyers out of the market.”

Ludwig also noted a correlation between interest rates and the size of new homes, with square footage decreasing as rates rose. “Buyers are ready, but affordability is holding them back,” said Ludwig. “As an industry, we must look at stabilizing affordability with price adjustments, construction of smaller homes, and reduction of local regulations.”

Across the metro, many of the same communities topped the list of statistics, with a few surprises in the mix.

“The number of building permits pulled dropped just over 10% in 2023, and we anticipate developers to remain cautious this year,” said Ludwig. “Keeping an eye on the supply is crucial as we lean into the future because there’s still a housing shortage. The historically low interest rates of a few years ago have slowed resales, giving new construction a crucial role in the market for the foreseeable future.”

As each of the 17th annual Builder Developer Luncheon speakers said, despite a rough close to 2023 and some cautionary indicators, the 2024 building season looks bright.

“Spring traditionally means party time for those of us who are builders and developers,” Ludwig said. “Who will jump right in, and who will wait and take a more cautious approach?”

There’s excitement in the air, even with some lingering uncertainty. And the party invitations are out if you’re ready when the doors open.

Learn More

Copyright © 2024 Home Productions, LLC. All rights reserved.