History says a recession is coming; the building industry will remain strong.
At this year’s Mid-Year Economic Forecast on June 18, the GHBA hosted 800 people at Bayou City Events Center.
The hilarious “Bowtie Economist,” Elliot Eisenberg, Ph.D, took the stage to share his perspective on why he is nervous about a recession and why he thinks we could get lucky and avoid a recession altogether. Regardless of what happens, Eisenberg believes the building industry will remain strong, especially here in Houston.
According to the economic expert and data provided by the U.S. Recession Indicator, each time the Federal Reserve raises rates, a recession historically follows two years later, which gives Eisenberg reason to believe we’re due for a recession any day now. Eisenberg indicated that key economic indicators, such as credit card delinquency rates at 9%, auto loan delinquency rates at 8% and 20% of banks tightening standards for commercial and industrial loans, are signs of a possible recession.
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Employment rates are another key indicator, and data from the U.S. Bureau of Labor Statistics reflects a low unemployment rate, at 4%, as of June 7. However, over the last 12 months, unemployment rates have been increasing.
“Once unemployment rates go up, it’s almost too late,” Eisenberg said.
According to data from Trahan Macro Research, the United States avoided a recession three other times since 1955 despite increased rates – in 1964, 1984 and 1994. While 2024 marks two years since the Fed started raising rates, Eisenberg has reason to believe we could get lucky and avoid a recession all together because of several, lingering Covid-induced factors.
“Could [this year] be the next lucky year? Yes,” Eisenberg exclaimed.
On May 1, the Fed kept rates at 5.375%, as it did again on June 12, and Eisenberg predicts the Feds will maintain that rate on July 31. According to Eisenberg, if the Fed lowers rates and unemployment rates start to go down, we will avoid a recession.
As for the housing market, it’s no secret that today’s high interest rates have deterred homeowners from selling. What is striking is that data from the National Association of Realtors shows existing home sales fell below 4 million nationwide by the end of 2023, which has rarely ever happened since 1994.
This phenomenon has created a significant opportunity for home builders to replenish the housing inventory, particularly in Houston, where other factors such as population growth are positively impacting the demand for housing, Eisenberg said.
The flipside to this opportunity, however, is the higher interest rates being used to fight inflation are making this needed increase in home building that much more difficult. While jobs in the overall construction sector have increased by 9,000 in April, only 1,100 jobs were added to residential construction, whereas non-residential construction employment added 7,800 jobs for the month, according to the Home Builders Institute Construction Labor Market Report Spring 2024 report. According to the National Association of Home Builders, more skilled construction workers will be needed to reduce the nation’s housing deficit during the second part of this decade, a shortfall NAHB estimates to total 1.5 million homes. Additionally, construction costs have increased 42.1% since February 2020, according to the Producer Price Index.
As we enter the second half of 2024, Eisenberg predicts that existing home sales will not decline to the lows experienced at the end of 2023, which is positive news. Eisenberg also notes that the aging housing stock signals a growing remodeling market, as older homes need to add new amenities or repair/replace old components. Over the long run, the age of the housing stock implies that remodeling will see a significant surge, especially as interest rates decrease and homeowners and first-time homebuyers alike begin to shop around again.
According to data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development, single-family home construction is picking up, and according to Eisenberg, could bolster the economy enough to avoid a recession. To keep housing financially attainable, homebuilders are on average building smaller homes, and as a result, home prices are flat as of June, but are expected to rise as interest rates come down.
Eisenberg wrapped up by urging the audience that Houston will remain strong. The economy should begin to recover in late 2025, Eisenberg said. And Eisenberg emphasized that even in the event of an economic recession, the housing market would remain strong due to strong demographics, housing demand and other key factors.
“So, sit back, relax, and enjoy it,” Eisenberg said in closing.
We hope you join us in January 2025 at the GHBA Annual Economic Forecast as Lawrence Dean from Community Builders Advisory Services gives us a hyper local look at the state of the economy and future of the building industry. We will have more details and information to share in the coming months. Check our website, social media, the next Houston Builder magazine and our weekly newsletters for more updates!
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