Proceed With Caution

Outlook from the 15th-Annual Builder & Developer Luncheon.

On Thursday, February 24, Peoples Company and Diligent Development hosted their 15th-Annual Builder & Developer Luncheon in West Des Moines. As usual, three speakers addressed the audience of local construction industry professionals, offering national and local perspectives on the economic outlook for 2022.

With two years of pandemic effects in the rear-view mirror and international unrest around every corner, Kalen Ludwig’s analogy to a high-speed auto race was an appropriate comparison.

As you’ll read below, the consensus from each of the experts seems to be “We’re moving forward steadily, but proceed with caution.”

Michael Neal: The long-range view

Michael Neal, a principal research associate with the Urban Institute in Washington, D.C., in the Housing Finance Policy Center, presented a macro view of the current economy and its potential impact on the local construction market.

Although it comes as no surprise to anyone who’s been involved in the home construction or real estate market in central Iowa over the past several years, Neal said that the strong demand that is expected to continue this year is putting additional strain on supply issues.

In addition, he says other national indicators raise caution flags as well. “Productivity, which is a measure of output per hour, hasn’t recovered as well. Labor-force participation rate is actually trending downward, which affects business capacity.”

Wages for those who are working are trending upward, however, which could support continued activity in both home sales and remodeling if concerns over inflation and interest rates don’t create buyer hesitation.“Categories like food and energy prices are both high right now, which are two of the most volatile markets for consumers. Even typically nonvolatile markets are rising drastically,” Neal says.

Because interest rates tend to follow the 10-year Treasury, which is currently climbing, Neal anticipates bank prime rates to rise and affect the cost of borrowing for both consumers and businesses. One potential effect for which economists are watching is the possibility of a recession a year or so down the road.

As Neal says, predicting the future is always a delicate business. “Nuance is needed,” he says. “Yes, there’s uncertainty as always. But knowing the worst and best possible outcomes, as well as their likelihood, helps balance perspective.”

Neal’s balanced perspective indicates single-family construction will flatten over the course of 2022, with multifamily construction and remodeling both increasing slightly.

Jay Byers: The central Iowa region

Jay Byers, President and CEO of the Greater Des Moines Partnership, the regional economic development organization that serves 10 central Iowa counties, highlighted projects in the works as well as reasons for optimism moving forward.

Central Iowa was already on numerous Top 10 lists, Byers says, and the pandemic has just reinforced that ranking. “Des Moines was named one of the top 10 cities in the country postpandemic because it has big-city amenities but is small enough to offer a lifestyle that allows residents to connect with their neighbors and their community.”

Another advantage Des Moines offers is its cost of living. Byers says, “Affordability remains a long-term advantage. Cost of living and the cost of doing business are both well below the national average,” which draws companies here as well as employees.

Over the past two decades, both population and employer growth have outstripped that of other Midwestern cities, with population growing 40% in just the past 10 years. “We were poised well with a number of economic development projects in the works prepandemic, which set us up for continued growth,” Byers says.

Despite COVID, those projects didn’t stall. Among them are the largest open skateboard park in the country; the Des Moines Industrial Transload Facility, connecting two interstates and multiple railroad lines; a water trails project that connects over 100 miles of water trails; a professional soccer stadium that will host Iowa’s first United Soccer League team; and a new, modern airport terminal.

Byers says an uncertain economy doesn’t have to result in an uncertain future. As Peter Drucker said in one of Byers’ favorite quotes, “The best way to predict the future is to create it.”

Kalen Ludwig: Metro Housing Stats

Peoples Company REALTOR® Kalen Ludwig concluded the luncheon with a presentation of the latest new-construction and housing statistics for the metro area, likening the current market to a high-speed auto race.

She says, “Everything is moving so very fast that one cannot help but wonder how long can it last. Eventually the home prices will have to meet the rising interest rates. Should you pump your brakes or keep your foot on the gas?”

Reviewing statistics from 19 communities around the metro, Ludwig says one of the most striking numbers is the percentage of resale properties on the MLS. “Typically, about 30% of listings are new construction,” she says. “That percentage is flipped right now, with 71% of active listings new construction.” That means the current listings provide just one month’s supply of resale properties compared to a decade ago, when inventory typically reflected six months’ supply.

Over the past year, that high-speed market has resulted in more than a 10% increase in home prices. “Low interest rates have kept payments level, but that could be changing as interest rates rise and income levels flatten,” Ludwig says.

Comparing numbers from metro communities, Ankeny, Waukee, Urbandale, and West Des Moines remained at the top in permits pulled in 2021. Rural communities, however, saw the greatest percentage growth, with Cumming leading that category with 89% growth.

Another statistic that’s changed dramatically in the past two years is townhome sales, which have rebounded since the pandemic, when those properties typically sat on the market much longer than single-family properties.

Ludwig’s slide presentation, comparing listings and sales for 2021 and also statistics such as lots in development and permits pulled, provides an indication of what to expect for 2022.

“Looking at these numbers, there are questions I’ll be considering going forward,” says Ludwig (see her website). “But one other question remains: Does one put the pedal to the metal or brake for a cautionary turn ahead? One thing can be certain, no road is smooth forever.”

Learn More. A summary of Ludwig’s presentation and local statistics can be viewed on her site: