Association presidents from across the industry share their perspectives.
Every January BUILD visits with professionals throughout the construction industry to hear their predictions for the year before us. In this issue we’re taking a broader approach.
We’ve spoken with several 2018 association presidents representing various aspects of the home construction field. You’ll find their assessment of 2018—and what that means for 2019.
2018 President, Des Moines Area Association of REALTORS®
“We had a historically good year in real estate in 2018, although the latter half of the year showed signs of the market normalizing finally,” Buckley says. After years of what he described as exponential growth, this slight slowdown is to be expected.
“Several factors have played into that. It’s the normal cycle of real estate to go through phases of growth and then level off. We’ve had issues with inventory, especially in the first-time buyer range, which is affecting prices. And interest rates are beginning to tick up a bit,” he explains.
Buckley says central Iowa has remained a strong, steady housing market, but mild uncertainty regarding interest rates and other economic issues resulted in a slight downturn as the year came to a close.
Buckley says, “If there is one constant in this business, it’s that the market is always shifting,” and successful REALTORS® prepare for that.
Changes like the moderate rise in interest rates that we saw late in 2018 will have some effect but not an overwhelming one on home sales in the year ahead, he says. “Because rates are still historically low, a slight increase can actually motivate buyers who’ve been on the fence. They often see the rising rates as reason to buy before the rates go higher.”
In fact, he expects 2019 to be another strong year for the Iowa home construction and real estate markets. “Central Iowa is thriving. Other areas of the country are more susceptible to market swings, but Iowa continues to be attractive to homeowners and to businesses that are looking to relocate.”
2018 President, Greater Des Moines Home Builders Association
According to Hoodjer, the home construction industry as a whole was relatively strong in 2018. That was especially true in central Iowa.
“Even as late as the end of December, the weather has allowed us to continue working,” he says. Despite the wet weather throughout the spring and summer, project schedules have benefited from a warmer fall, and builders were able to work steadily through the end of the year.
“We had the same challenges we’ve faced for the past several years,” he says. “We’re dealing with rising lumber prices, interest rates that may or may not rise, and a shortage of skilled labor.”
Builders continued to seek solutions to those challenges, but despite those concerns, Hoodjer says the Des Moines market remained strong and fairly unaffected by the volatility in other markets across the country.
“I tend to be optimistic, and I’m very optimistic about 2019, even though there are definitely some unknowns ahead,” Hoodjer says.
Factors that may affect the industry—interest rates, lumber prices, land costs—are the same challenges the construction field has nearly always faced. “I don’t think interest rates are going to go crazy. Lumber is starting to go down. Land is still expensive. But I choose to be optimistic,” he says.
One recent change that has raised unanswered questions—the sale of Ankeny’s Classic Builders—is ultimately a positive sign for the market, Hoodjer believes. “There’s a reason the nation’s largest builder is coming here. We’re not a huge market, but we’re a strong market. I don’t know how they’ll affect pricing, but I think their presence will be a benefit. It may help bring some stability to pricing. And the competition will benefit homeowners as well as builders.”
Laura Kay Sheely
2018 President, Iowa Mortgage Association
“In terms of home ownership, 2018 was a year of good news, and Iowa has been leading the way nationally,” Sheely says.
A greater percentage of Iowans owned their own homes by the end of 2018—more than 70%, compared to about 65% nationally, and fewer Iowans are delinquent on their mortgages than the national average (1.5% of Iowans, compared to 2.1% nationally). “This tells us that not only are more Iowans able to purchase homes, but they’re able to maintain them as well,” she says.
Sheely says there was a bit of a slowdown in mortgage applications near the end of the year, when interest rates rose slightly. “We already began seeing a bit of a decrease in refinancing applications as homeowners are growing a little more cautious about making big changes while they wait to see what’s happening with interest rates.”
“I’m no economist, but based on financial projections, I don’t anticipate interest rates to change significantly over the next year, barring any major economic changes,” Sheely says.
She says homeowners tend to exercise a little caution in purchasing new homes when interest rates first change, but that can result in increased activity in the remodel market. “It’s a great opportunity for remodelers since many homeowners choose to upgrade and stay in their homes. This is especially true when home equity loan rates are as competitive as they are now,” she explains.
According to Sheely, one challenge facing the market in 2019 is inventory levels. “The options available at the first-time buyer level have been consistently low. The longer that continues, the greater the effect on the real estate market as a whole.”
2018 President, Home Builders Association of Iowa
The home construction industry had a fairly good year, according to Webster, despite some ongoing challenges. “We’ve been dealing with price increases for a while now,” he says. “Material prices are still high, and labor remains difficult to find, which means the cost of labor is higher.”
Webster believes those factors had more influence on the construction market in 2018 than other economic factors, such as interest rates and trade policies. “We did see some deregulation in the banking industry this past year, which helped balance out the potentially negative effect of increased interest rates. But the volatility overall has kept the market from growing as quickly as it could have.”
The prevalence of trade discussions and fluctuating policies probably didn’t help, Webster says. “But overall, 2018 saw continued, gradual improvement in the industry.”
Webster anticipates a steady or slowing market in 2019, but he says he’s more pessimistic—or cautious—than most. Even so, he believes remodelers will be less affected than builders by any market changes.
“There has to be some correction to the high price of homes,” he says, and fluctuating rates may play a part in that. “Increased interest rates take a year or more to trickle through the market,” so the effect of these changes may not be evident until late in 2019. “If raising the rates is coupled with deregulation, it can ultimately be a positive thing.”
Predicting the effects of a volatile market can be nearly impossible. Webster says he pays special attention to financial forecasts. “If you listen to what the experts are saying and stay just a little more pessimistic than the economists, you’re usually OK.”
2018 President, Iowa Association of REALTORS®
Kamps says Iowa saw steady growth in almost every category in 2018. “New listings rose nearly 4% by the end of the third quarter, and inventory was up 4.5% for single-family homes and nearly 9% for condos and townhomes.”
The median sales price continued its gradual rise, and days on the market dropped significantly (down almost 20%).
“All of these statistics indicate that the market remained strong in 2018,” he says. “There had been a shortage of inventory coming into the year, but that rose steadily. And homes continued to sell quickly, which helps the market remain healthy.”
Kamps says that a strong unemployment rate counteracted the slight rise in interest rates, which didn’t seem to have a dramatic effect on sales as the year wound down.
“We always expect the next year to be even better, but in nearly 35 years in this business, I’ve never felt the level of uncertainty that I see now,” Kamps says.
One frustration for everyone in the home construction and real estate fields has been a lack of inventory in specific price ranges. “People who should be moving up aren’t, and that leaves nowhere for entry-level buyers to go. When potential buyers can’t find a home in their price range, that leads to buyer frustration,” he says. “Eventually they decide to stay put, and that has a ripple effect throughout the market.”
Kamps says people seem to be optimistic about the market nationally in 2019, and Iowa continues to be stronger than most other regions. With the unpredictability of policy changes coming out of Washington, he says it’s difficult to make knowledgeable projections.
“Things look good as 2018 comes to a close,” he says. “But that can all change with a tweet.”