We’ve Lowered Our 2023 Forecasts for Residential Construction and Repair and Remodel Spending

U.S. home sales slowed significantly in 2022 as rising mortgage rates and elevated home prices made homeownership less affordable for more Americans. By mid-2022, the average 30-year fixed mortgage rate had increased roughly 300 basis points year over year to over 6%. According to estimates from the National Association of Home Builders, this rate increase priced out more than 16 million households. We also think higher rates and general economic uncertainty caused some qualified prospective buyers to move to the sidelines. All told, 2022 new- and existing-home sales declined 17% and 18% year over year, respectively.

While some homebuilders have become modestly more optimistic as the spring selling season unfolds, homebuyer optimism (as measured by Fannie Mae’s Home Purchase Sentiment Index, which was launched in 2010) remains near index lows, and purchase mortgage application volume is more than 30% below 2019 levels.

We’ve become marginally more pessimistic on near-term single-family construction. We now project 2023 housing starts to decline 22% year over year to 1.220 million units (versus our previous 1.275 million forecast). We continue to project new- and existing-home prices to decrease 15% and 5%, respectively, between 2022 and 2024.

Repair and remodel spending has been more resilient than residential construction, but this market appears to us to be slowing. Most firms with significant R&R market exposure now see a market contraction this year, with the more optimistic outlooks generally seeing a low-single-digit decline. We’re now modeling a 4.5% decline in owner-occupied improvement spending in 2023, down from our previous projection of about a 1% decline.

We don’t expect our forecast revisions to materially change fair value estimates across our U.S.-housing related coverage. Our long-term outlook for rebounding residential construction and repair and remodel spending by 2024 is unchanged.