National Association of Home Builders<\/a> (NAHB) chief economist Robert Dietz, the current U.S. economy is the equivalent of a plane coming in for a crash landing.<\/p>\nOn Thursday, September 8, the Iowa City chapter of the Home Builders Association hosted Dietz at its monthly gathering. His presentation included an aerial view of the U.S. economy, as well as a look at Iowa specifically.<\/p>\n
With the Federal Reserve tightening interest rates and inflation the highest it\u2019s been in nearly 40 years, Dietz says a recession in the next 12 to 18 months is inevitable. \u201cThe plane is going to land hard,\u201d he says. \u201cHow hard depends on the Fed.\u201d<\/p>\n
Dietz doesn\u2019t expect a crash like that of 2008. But on a national level, the plane is definitely coming down. \u201cThat\u2019s not to say there won\u2019t be growth in some markets,\u201d he believes. \u201cCommunities that encourage growth, communities that create an affordable environment for builders and developers to work, those communities will see growth.\u201d<\/p>\n
After two years of dramatic increases in nearly every sector of the economy, the U.S. saw numbers contract during the first quarter of 2022. Dietz says this was due in part to the artificial economic stimulation from the government\u2019s stimulus program during the COVID-19 pandemic. <\/p>\n
\u201cCash flow increased, but output was reduced,\u201d Dietz explains. \u201cThose two together equal inflation.\u201d <\/p>\n
Core inflation, although just beginning to come down, peaked at nearly 9% higher than it was in mid-2021. <\/p>\n
Unemployment is another factor playing into the changing market. Two statistics in particular reveal how great a part. First, there are twice as many vacant jobs as there are individuals on the unemployment rolls. Second, the labor force participation rate has been steadily declining since 2000. <\/p>\n
\u201cAnd on top of that already-declining labor force, add the fact that half of those who stepped away from employment during COVID have not returned,\u201d says Dietz.<\/p>\n
Despite these warning signs, Dietz doesn\u2019t anticipate a hard landing for the economy. \u201cI expect the Fed to keep interest rates a little higher for 2023, then begin a gradual decrease in 2024 as the economy levels out,\u201d he says.<\/p>\n
Dietz isn\u2019t the only expert who\u2019s forecasting this approach from the Federal Reserve. As he explains, \u201cThe markets have already anticipated this tightening in the monetary policy, so most institutions have adjusted rates accordingly. Rates aren\u2019t expected to fluctuate dramatically for consumers because of this.\u201d<\/p>\n
As far as the construction market is concerned, materials costs and supply issues will continue to be concerns. Lumber prices are coming down from their 2021 peak. However, building materials as a whole are still up about 16% compared to pre-pandemic prices.<\/p>\n
Dietz says this is one area the federal government could play a bigger part. \u201cSupply side issues aren\u2019t being addressed effectively.\u201d <\/p>\n
Because of increased demand and increased material prices, housing affordability will remain a major issue in the industry. As of late August, only 45% of homes on the market nationally were affordable for the average buyer. That is the lowest percentage of affordable homes in over a decade.<\/p>\n
\u201cIowa continues to have strong population growth and a stable market,\u201d Dietz says, \u201cso I don\u2019t anticipate the same fluctuations here and elsewhere in the Midwest that we\u2019re seeing in some other areas of the country.\u201d<\/p>\n
The median price of a new home increased by nearly 40% by early 2022, but prices are recovering to be more in line with inflation and other prices.<\/p>\n
Dietz anticipates custom home building will remain stable and that multifamily projects, which have increased more than 15%, will level off over the next couple of years. Single-family projects are down nationally, although strong in Iowa. As the rest of the economy levels out, he expects single-family projects to begin rising again, likely early in 2024.<\/p>\n
Long-term, Dietz is watching a couple of potential warning signs for the construction industry\u2014an aging workforce and declining population growth. \u201cIn July of this year, there were about 375,000 job openings in the construction industry,\u201d he says. He says twice that number of openings ae added each year as the market grows and workers retire.<\/p>\n
Not only is the median age in the industry 41, but a quarter of the workforce is made up of immigrants. Drawing young people to the industry and encouraging sensible and enforceable immigration policies will both be key in sustaining the industry in the future.<\/p>\n
\u201cThe U.S. fertility rate continues to drop. That will affect not only our labor shortage but the rental markets and the first-time buyer market,\u201d says Dietz.<\/p>\n
If population numbers continue declining, there will be fewer first-time home buyers in 25 years, fewer renters, and a smaller pool of workers to fill job openings.<\/p>\n
Despite those warning signs and the turbulence of the past 24 months or so, Dietz says the U.S. financial industry has implemented safety practices since the 2008 crash, so brutal decline is unlikely.<\/p>\n
Experienced air travelers have learned to expect bumpy landings from time to time. Dietz says economists understand how to deal with that: Planning ahead and avoiding unnecessary risks will make even a bumpy landing less painful. <\/p>\n","protected":false},"excerpt":{"rendered":"
NAHB economist sees a slowing economy ahead. A discussion of the economy isn\u2019t typically filled with nail-biting drama. But according to National Association of Home Builders (NAHB) chief economist Robert Dietz, the current U.S. economy is the equivalent of a plane coming in for a crash landing. On Thursday, September 8, the Iowa City chapter of the Home Builders Association hosted Dietz at its monthly gathering. His presentation included an aerial view of the U.S. economy, as well as a look at Iowa specifically. With the Federal Reserve tightening interest rates and inflation the highest it\u2019s been in nearly 40 years, Dietz says a recession in the next 12 to 18 months is inevitable. \u201cThe plane is going to land hard,\u201d he says. \u201cHow hard depends on the Fed.\u201d Dietz doesn\u2019t expect a crash like that of 2008. But on a national level, the plane is definitely coming down. \u201cThat\u2019s not to say there won\u2019t be growth in some markets,\u201d he believes. \u201cCommunities that encourage growth, communities that create an affordable environment for builders and developers to work, those communities will see growth.\u201d After two years of dramatic increases in nearly every sector of the economy, the U.S. saw numbers […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[2],"tags":[],"class_list":["post-7542","post","type-post","status-publish","format-standard","hentry","category-featured"],"modified_by":"Build Des Moines","_links":{"self":[{"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/posts\/7542","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/comments?post=7542"}],"version-history":[{"count":3,"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/posts\/7542\/revisions"}],"predecessor-version":[{"id":7554,"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/posts\/7542\/revisions\/7554"}],"wp:attachment":[{"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/media?parent=7542"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/categories?post=7542"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.builddesmoines.com\/wp-json\/wp\/v2\/tags?post=7542"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}