The Big Picture

After much of 2023 saw decreased housing starts and low builder confidence, new housing construction figures are starting to creep back up. However, remodeling may be heading for a slowdown, according to industry forecasters. Economic concerns hamper both figures, and the manufacturing industry as a whole is also feeling the impact of a shaky economy, inflation and rising costs across the board.

New construction

Builder sentiment was cautiously optimistic in April as limited resale inventory helped increase demand in the new home market even as the industry grapples with building material issues. The NAHB/Wells Fargo Housing Market Index registered a one-point gain in April to 45. Although any number less than 50 is considered negative, it’s a significant gain from the November 2022 reading of only 33.

Overall, housing starts posted a decrease in March of 0.8 percent. The single-family sector is improving 2.7 percent, but it’s still 27.7 percent lower than a year ago. However, this is an improvement from February data, in which year-over-year figures were 31.6 percent lower than a year ago. “We expect choppiness for single-family construction in the months ahead, with the 2023 data posting significant year-over-year weakness before improving on a sustained basis,” says NAHB Chief Economist Robert Dietz. 

Key takeaways

  • Builder sentiment. One-third of housing inventory is new construction, compared with historical norms of around 10 percent. This, combined with fewer listings in the resale market, is giving builders an edge.
  • Turning point ahead. “With builder sentiment climbing for four consecutive months and single-family starts continuing to move gradually higher from low levels since the beginning of the year, this indicates that a turning point for single-family construction will occur later this year after declines in 2022,” says Alicia Huey, chairman of the National Association of Home Builders
  • Supply, labor challenges. Supply-chain struggles and ongoing labor shortages continue to challenge builders.

Remodeling

Remodeling, on the other hand, may be about to see a decline after more than a decade of continuous growth. The Leading Indicator of Remodeling Activity released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University projects that year-over-year homeowner improvements and maintenance expenditures will post a modest decline of 2.8 percent through the first quarter of 2024. 

“Higher interest rates and sharp downturns in homebuilding and existing home sales are driving our projections for sluggish remodeling activity next year,” says Carlos Martín, project director of the Remodeling Futures Program at JCHS. “With ongoing uncertainty in financial markets and the threat of a recession, homeowners are increasingly likely to pare back or delay projects beyond necessary replacements and repairs.”

Key takeaways

  • A slower pace of growth. The NAHB/Westlake Royal Remodeling Market for the first quarter of 2023 posted an increase in the Future Indicators Index and a slight decrease in the Current Conditions Index. NAHB says these figures are consistent with their projection that remodeling will grow in 2023 but slower than in 2022. 
  • Remodeling boons. Aging-in-place may be a strong sector for remodeling in the coming years, predicts NAHB. The JCHS at Harvard University also notes federal incentives for energy-efficiency retrofits may buoy remodeling and prevent it from steeper declines.

Manufacturing

The manufacturing industry’s top concerns revolve around tax, trade, permitting and regulatory proposals, according to the National Association of Manufacturers Q1 2023 Manufacturers’ Outlook Survey. Overall, the NAM Manufacturing Outlook Index rose four points from last December’s reading, though it remains just below the historical average.

Key takeaways

  • Workforce struggles. Nearly three-quarters indicate attracting and retaining a quality workforce as a primary business challenge, with increased raw material prices and supply chain challenges as the next two biggest.
  • Tax burdens. More than 90 percent said higher tax burdens on manufacturing income would make it difficult to expand their workforce, invest in new equipment or expand their facilities. Almost 94 percent said regulatory burdens would similarly burden them.
  • Permit troubles. About three-quarters indicated permitting reform, which would simplify and expedite the approval process for new projects, would be useful in helping hire more workers, expand their business, and increase wages and benefits.