The country is already in the midst of a “mild recession,” but local job growth is outstanding and inflation has peaked, an economist told Dallas builders last week.
National Association of Home Builders Chief Economist Rob Dietz emphasized that next year is going to be difficult, but 2024 will be a year of housing rebound and stabilization of home prices.
The U.S. economy is now experiencing a labor shortage that began in the construction industry — so local builders already have dealt with and adjusted to the brunt of the declining economy, he said.
Dietz joined expert panelists including NAHB Vice President for Government Affairs Lake Coulson and Texas Association of Builders Executive Vice President Scott Norman for the discussion at the Dallas Builders Association State of the Industry summit.
Dallas Builders Association Executive Officer Phil Crone acknowledged that what’s happening across the nation affects the Dallas-Fort Worth market.
“We’ve got a lot of things working in our favor with the strength of the market here in Texas and specifically here in this region, but regardless of that, the things that are happening nationally will [impact] and have impacted this area,” Crone said.
Dallas Housing Market Numbers
Dallas has solid job growth numbers, the best Dietz has seen all year, the economist said.
“The economies that did better during COVID in terms of good policy-making have benefited in terms of jobs,” Dietz said. “The Dallas numbers are just absolutely outstanding.”
The labor force participation rate for men was 86 percent prior to World War II, but the nation has since experienced decades of failures in policy, social, and educational arenas, Dietz added.
“The result is this ongoing decline such that we’re now down to a 66 percent labor force participation rate. We are failing our nation’s boys and it’s clear in this data,” he said. “It’s no mystery why the labor shortage is the worst in sectors that are male-dominated — construction, transportation, energy, the military, commercial airline pilots. It’s a call that we have to diversify the workforce. Construction is only 10 percent women. We need to bring more in, but this is a real challenge in terms of our country’s labor markets.”
Housing affordability continues to decline, but that’s no surprise to Dallas builders.
“Communities that have the ability to have housing are going to be the ones that grow the fastest in this coming downturn,” Dietz said. “That’s a message that’s been well-received in the South. In the Northeast, they don’t get it yet. They’re losing population to cover that. There are high regulatory costs and an inability to have housing thrive. There’s an interesting geographic effect that’s occurring in the U.S. economy, particularly as you come out of COVID.”
Prevailing rents are 15 to 20 percent higher than they were a year ago, Dietz explained. Rents are higher because there isn’t enough housing stock.
“Single-family construction is declining for the first time this year since 2011,” he said. “We think multi-family will decline next year. It continues to be strong. We think remodeling will perform the best during this cyclical downturn due to some factors connected to the fact that people are going to move with less frequency.”
Home prices will fall about 10 percent in 2024, Dietz predicted.
“Markets with the best population growth are going to see better conditions,” he said. “Nationwide only 43 percent of homes are affordable. In the Dallas area, it’s 32 percent. The good news for markets like Dallas is the population growth rates are outstanding.”
Dietz’s research is posted at the NAHB’s Eye on Housing site.
Interest rates surged early this year, but the recession Dietz predicts will not be a repeat of 2007. The only reason academics haven’t called it a recession yet is that jobs are still being added.
“The academics who make the official call of this want to see a rising unemployment rate,” Dietz said. “My response to that is, ‘Just wait. It’s coming.’ It’s going to be lagged because we’re still adding jobs from having lost jobs during the COVID recession.”
Inflation is the reason the Federal Reserve is tightening monetary policy, the economist explained.
“We want the Fed to pay less attention to the data point, the measure of consumer inflation,” he said. “There’s a real challenge with the [Consumer Price Index] that could risk the Federal Reserve going too far. Housing is 42 percent of the CPI. It’s a combination of rent and something called owner’s equivalent rent, the rent the homeowner pays themselves as a landlord. The challenge here is we know the reason housing prices are higher. Construction costs have gone up, regulatory burdens have gone up, and we have a deficit of housing.”
The Fed can’t address those challenges; that’s a supply-side matter, the economist explained.
“We need to stop focusing on something they don’t have much control over and frankly is going to go up regardless of what they do,” he said.