Savannah Chamber

11 5 With demand high and supplies tight, the number of single-family housing starts for new construction will increase by about 10 percent in 2022. The increase would be even larger if not for shortages of construction workers, building materials, household equipment and appliances, and developed lots. Home prices will rise by about 5 percent, exceeding the expected rate of inflation of 3.4 percent, but far less than the 15 percent increase in home prices estimated for 2021. Prices will continue to rise because demand will be strong, supplies will be tight, and the supply chain for new home construction is inadequate. As always, the performance of the U.S. housing market depends on the performance of the labor market, changes in mortgage rates, and credit conditions. New jobs and bigger paychecks--plus appreciated home values--will give more people the wherewithal and the confidence to buy homes, sustaining the housing market's growth in 2022. Prevailing low mortgage rates will continue to be a strong driver of housing sales. Supply constraints--the scarcity of developed lots and a shortage of lumber and construction tradespeople-- will moderate rather than stop the growth of the homebuilding industry. In effect, these shortages will prolong the homebuilding upturn, providing support that the economy will need as fiscal and monetary stimuli fade. Financing for lot development and speculative homebuilding will be more available, reflecting appreciated home prices and very good prospects for new home sales. As mentioned, affordability is a significant headwind for housing sales and new home construction. Housing affordability is expected to drop by about 8 percent in 2022, following the 7 percent drop estimated for 2021. Another negative for homebuilding is slower population growth and the reduced rate of household formation- -which never fully rebounded from the lows reached after the Great Recession. Also, the eventual wind down of many mortgage forbearance programs launched during the Covid-19 recession will put more foreclosed homes on the market, but this influx will only dent a still-tight inventory. Nonresidential Construction Spending for new nonresidential construction will increase and public spending for construction projects will be exceptionally strong. In the private sector, the upturn in nonresidential construction lacks vigor because rents are depressed, vacancy rates are elevated, and absorption is limited. Nonetheless, overvalued equity and bond markets will make investors interested in income-producing property as an asset class. In many markets, tenants will have the upper hand in lease negotiations. Trade tensions, dollar strength, and travel restrictions will continue to dampen foreign investors' interest in American real estate, but to a lesser degree than in 2020-21. But there will be a few very bright spots: private spending will increase to build data centers, communications infrastructure, R&D facilities, and warehouses. In addition, construction spending by federal, state, and local governments will soar. Office and retail vacancy rates are very high and probably will not recede too much in 2022. Covid accelerated the trend towards remote work, which reduces office headcounts and the overall demand for commercial office space, with the likely result being substantially less utilization of commercial office space per dollar of GDP. Demand for new commercial office space will be most resilient in lower-density urban and suburban markets, especially where high tech and healthcare industries are concentrated. The glut of retail space will sharply limit new retail construction, but some will occur in places that benefited from heavy in-migration of teleworkers and retirees. Financing to build new retail space will be difficult to obtain but will be available for the repurposing of retail space in good locations. Competition from online retailers decreases the need to build stores but increases the need to build distribution centers. Industrial development will be focused on locations with logistical advantages. Public sector spending for nonresidential construction will increase much faster than private spending for nonresidential construction. Revenue collections by state and local governments held up much better throughout the pandemic than initially feared. In addition, federal government transfers to state and local

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