Savannah Chamber

12 6 rates) suggest that unless foreign immigration increases substantially a shortage of workers could be a feature of the post-pandemic U.S. economy, which is only occasionally interrupted by recessions. That bodes well for an eventual rebalancing of income from capital to labor, which should help to reduce inequalities in income. Unless productivity grows faster than in previous decades, slower labor force and population growth means slower economic growth. Housing Home sales and homebuilding were important drivers of US GDP growth in 2020-21, but housing activity subtracted from GDP growth in 2022 and will do so again in 2023. As is typically the case, the housing downturn led the downturn of the overall economy. In 2022, substantially higher mortgage rates and the recent run up in home prices dramatically reduced housing affordability. In addition, people's confidence in the economic situation fell to levels not conducive to home buying. On the other side of the recession, there are positives for housing that will power the industry's recovery. Demand that was not satisfied in 2020-21 (due to shortages of homes for sale) will support higher sales of new and existing homes. Millennials are reaching the age where they will buy homes in much larger numbers, especially in Southern and Western states where overall population growth is stronger than in other regions. One fundamental difference between the situation today and the situation prior to the housing bust is that the proportion of homes flipped was low. Most homes were sold to people who live in them – or to long-term investors looking for reliable sources of income – rather than short-term speculators. That means existing home prices likely to decline less sharply in the wake of this housing boom than in the wake of the housing boom that preceded the Great Recession. It's likely that the pandemic caused a structural shift that favors owner-occupied housing over rental housing and low-density housing over high-density housing. Telework at scale, distance education, more caregiving at home, more recreation and entertainment at home, and wider recognition of the health benefits of social distancing make the home more important and more valuable to many people. Such trends favor home ownership, especially single-family detached housing. The 2023 recession will not change those dynamics. The greater acceptance of remote work and remote education means that families need more space at home. Put it all together and people are willing to pay more for a single-family home than prior to the pandemic. Homes are more valuable. The pandemic caused many older homeowners to stay in their single-family homes longer than originally planned, postponing their moves to retirement communities or assisted living facilities. The postponement of moves by elderly homeowners to multiunit housing arrangements means fewer existing single-family homes will be on the market to satisfy buyers' need s. More new home construction will be needed. Another reason why home prices will not decline too much is that the Great Recession destroyed much of the supply chain for new home construction and caused many workers to permanently exit the construction trades. Because not many homes were built in the recovery that followed the Great Recession, single-family homes remained in very short supply throughout the post- pandemic housing boom. Inventories of homes for sale will remain lean throughout the 2023 recession. Once the 2023 recession is over, there will be an immediate need to build single- and multi-family homes. We expect the price of existing single-family homes to drop by about 8 percent in 2023. The main reason why home prices will drop is decreased affordability due to both higher mortgage rates and recent sharp increases in home prices. According to the National Association of Realtors single-family homes were 31 percent less affordable in mid-2022 than in mid-2021. Another factor behind home price declines is that home are overvalued by traditional metrics. As of mid-2022, Moody's Analytics estimated that homes were overvalued by 25 percent, the highest level of over

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