The good news is that the economy is making a robust recovery, the bad news is that housing supply continues to lag and that is a significant problem.
On December 7, NH Housing presented an online webinar, Economy 2022: Growing or Slowing, with Economist Elliot Eisenberg, PhD. Eisenberg is a former economist at the National Homebuilders Association and currently works as a consultant and writes a daily economics blog on a range of subjects dealing with the economy.
According to Eisenberg, the COVID-19 pandemic caused a recession unlike anything in recent memory. While it took years to recover from the dot.com bust and the 2008 recession, this time the economy bounced back almost immediately. The national unemployment rate is down to 4 percent, productivity is up, the GDP is growing, and the stock market is performing well.
But not everything has recovered as quickly. As the pandemic made its way around the globe, it caused interruptions in manufacturing, and movement of goods and materials, and created scarcities of consumer goods. These supply chain issues caused shortages and price increases that have led to inflation.
The pandemic also caused significant changes in consumer behavior. People continued to work and collect paychecks, but were unable to spend money on travel or entertainment. That, combined with stimulus checks, led to significant increases in savings.
Also, during the pandemic many people shifted to working from home. Without the need to be close to the office, some workers began moving away from the city proper and out to suburbs and nearby rural areas. This led to a boom in housing sales.
And while many people across the country did move, most did not move far. Ben Frost, Managing Director for Policy and Public Affairs for New Hampshire Housing, indicated that this is also true for New Hampshire.
“While we heard a lot about an increase in buyers from Massachusetts, we found that most buyers were already here in New Hampshire. However, there was a modest but statistically significant increase of homebuyers from elsewhere,” said Frost.
The small inventory of homes on the market, combined with increased demand, led to skyrocketing sale prices for homes. According to Frost, currently the average home price in New Hampshire is $375,000, down from the $410,000 peak in August of 2021.
Eisenberg noted that nationally there is a deficit of between 3 and 4 million units and that this inventory has been shrinking for the last decade. Most of the current real estate market centers on the resale of existing homes. “There are no new homes to purchase,” he said.
Two areas of the economy that continue to lag are creating significant challenges for builders and developers who want to construct new homes. The supply chain problems have caused a scarcity of, or significantly increased costs of, building materials such as lumber, shingles, nails, and even appliances.
Secondly, many people have left the workforce which has made it difficult to secure the necessary labor to build new homes, and many of the people who work in these trades are currently busy with renovation projects for existing homes.
Eisenberg also notes that 10 years ago 40 percent of new home construction was entry-level homes, now it is virtually zero. This will have long-term ramifications given that millennials are reaching prime home-buying age and there is nothing for them to buy.
The state’s rental market also remains challenging. Across the country rents are rising 3.1 percent. Housing costs constitute 20 to 30 percent of the Consumer Price Index and may contribute to inflation. Vacancy rates remain very low, which makes finding a place difficult and contributes to increased costs.
Even with this, Eisenberg is optimistic about the future. As long as the COVID-19 pandemic continues to fade and shift to the endemic phase, he sees the economy continuing to recover. Areas that have lagged, like retail and restaurants, will gain strength and increased wages will entice more people to return to the workforce. He also sees continuing improvement for small businesses.
This event was also the last to be hosted by NH Housing CEO Dean Christon, who will be retiring at the end of the year. Christon worked at NH Housing for 34 years and served as CEO for the past 15. New CEO Robert Dapice will take over in January. Dapice has been with NH Housing since 2014 and managed the multi-family housing program.
Eisenberg’s visual presentation is below:
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