Rising Home Prices Headwinds Ahead for U.S.

WASHINGTON — (By Dale King, Realty News Report) – A shortfall in residential construction is driving home prices higher as more Americans migrate to the suburbs, says Adam Ducker, CEO of the RCLCO real estate consulting firm.

“We are under-building housing,” Ducker said in his keynote address at the Urban Land Institute’s Terwilliger Center for Housing Opportunity Conference in Atlanta.

Ducker offered a generally upbeat prognostication for the future of the dwellings-for-sale and rent markets, although prices have risen sharply, pressuring low-and moderate-income households.

Unprecedented Growth During COVID Years

Reflecting on two years of real estate price points that were alternately crushed, then buoyed back to life and eventually boosted to historical growth levels by the worldwide COVID-19 pandemic, Ducker noted that “the headline of the year [for 2021] should have been: ‘Unprecedented price growth and rent growth.’”

“The jury is still out,” he noted, “on how COVID will impact 2022.” He did affirm that one “trend” from 2021 – “the flight to the suburban market” – will continue. “Rent growth picked up earlier in the suburbs.”

Expensive to Build; Expensive to Buy

The recent growth in demand for housing “has reduced the supply” – and prices reflected this. “As recently as 2012, two-thirds of homes in the United cost less than $300,000. Today, almost no homes cost less than $200,000. About all the growth in housing has been in the luxury market. And it was not because of COVID, though COVID accelerated it.”

The move to more pricey homes and apartments “is a trend,” he said. “It’s structured – and it is long-lasting. Among for-sale homes, especially low-density properties are serving the upper market.”

While Ducker didn’t offer lots of warnings, one that hit home among Realtors and contractors was this: “We are underbuilding housing. This was the primary explanation for 2021. People are moving back into the housing market. And housing is expensive to buy, expensive to build and materials are being sold at much higher rates.”

The price of buying and selling property in the U.S. is high, but “is still affordable when compared to the rest of the world.”

He added: “Housing has to stop getting more expensive. Eventually, people will have to cap what they can afford.”

Help already seems to be arriving in that market, he said. “People are experiencing real after-tax income growth – in both the wage and savings categories.”

Having a little extra swag in the pocket is giving folks a good feeling. “A lot of renters are feeling more economically secure,” he said. “Many people feel that money spent on housing is money well spent. It’s good. The other ‘good’ is that the investment market is doing well. More money is being invested in for-sale property and senior property. A lot of capital seems to be flowing into the market. We are in a really exciting economic place.”

The types, styles and variety of residences are also increasing. “The market is so much more varied that 10 or 15 years ago. Today, you can find 17 types of income-producing housing, up from about three.”

Rising Interest Rates

Ducker tossed out a thinking point: What about rising interest rates? “Interest rates are likely to trickle up,” he said, pondering whether the war in Ukraine will have an impact on the housing market.

Moving to the affordable housing arena, the Ducker said the amount of non-luxury housing in the U.S. “is declining as a share of market sales, but it is stable. But we are not providing affordable housing at the rate we should.”

Newer affordable homes are sprouting up in the South and West. “Middle income residents represent the middle class of the U.S.,” he said. On the bright side, he said a lot of multifamily unit growth for the coming 10 years “will be among families.”

Likely to happen in the future, he added, will be a change in the “sensitivity” toward workforce developments. “Mixed-income housing” should take hold within these more moderately priced complexes.”

In response to questions at the end of his address, Ducker said he sees “no sea change in the regulatory process” for construction of new homes. And excessively cumbersome regulations have been listed by the National Association of Home Builders as a drag factor contributing to higher prices.

Headwinds in 2022 Outlook

“We will see headwinds,” said Ducker. “New home production has slowed. What will happen with immigration and the shrinking workforce? How should we consider the impact of transients?”

But he countered that “some really good things” are likely to happen. “It’s a fact that a lot of investment [in property] is happening. This may be the tip of the iceberg. More innovation than ever is taking place in the housing market, perhaps proving that necessity is, in fact, the mother of invention.”

Ducker’s address officially kicked off the conference. His speech followed a welcome to attendees from Atlanta Mayor André Dickens and J. Ronald Terwilliger, chairman emeritus and retired chief executive officer of Trammell Crow Residential, and the founder and chairman of the J. Ronald Terwilliger Foundation for Housing America’s Families, an organization established in 2014 to “recalibrate” U.S. federal housing policy.

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Adam Ducker Photo by Louis Tinsley/DC Corporate Headshots. Assistant – Briana Ince