Steady Progress Ahead
Area builders make their annual predictions for the coming year.
John F. Kennedy once said, “Change is the law of life. And those who look only to the past and present are certain to miss the future.”
In central Iowa, leaders in the construction industry have long recognized this wisdom, learning from the past, acknowledging the present, and actively pursuing a better future. Taking this approach has protected the local housing market from the dramatic fluctuations experienced elsewhere in the U.S.
As we head into 2024, a year that will see continued global conflict, national elections, and economic uncertainty, change remains the law of life. But local professionals remain prepared for whatever the future brings.
Kevin Johnson
Accurate Development
Despite multiple factors that typically affect the construction market such as world events, national elections, and the economy, Kevin Johnson says interest rates may play the biggest role over the next year. “The demand for homes is there, but people are waiting to see what happens with interest rates. You hear lots of different reasons for why interest rates may change, but nearly everyone is predicting that rates will go down before the end of 2024.”
If those predictions hold true, Johnson expects the year to be steady, if slightly slower than the past few years. “We ended 2023 about where we expected, but we had dialed back our goals for the year compared to 2021 and 2022,” says Johnson. “For now, we’re keeping our targets for 2024 a little on the conservative side. If interest rates drop earlier in the year, we may adjust those expectations.”
Johnson says land prices have remained fairly consistent for the past year, but lot prices continue to increase. “New municipal regulations keep getting added. When one city brings in a new regulation, others tend to fall in line. No matter how well-intentioned those regulations may be, every one of them results in an increase in the cost of each home we build.”
This means building affordable homes continues to be a daunting task. Even building executive homes within budget is a challenge in the current market.
“Supply issues are less of a concern than they were a couple of years ago, but inflation has affected the price of every item that goes into a home. That’s having an effect on the choices homeowners and builders have to make,” Johnson says. “For example, we’re not finishing lower levels in our spec homes most of the time; we’re just prepping them so homeowners can customize the finish themselves.”
Home designs have also had to adjust to accommodate shrinking lot dimensions at nearly every price point. But Johnson says custom-home buyers have always sought ways to achieve the home they want at a price they can afford. That’s still the case, whether it means prioritizing high-end materials in key areas or scaling back square footage and investing more in finishes.
“One thing we’re seeing more of every year is indoor/outdoor living space. Lots that back to parks or green space are in high demand,” he says. “That’s always been true. But ever since COVID, creating a space where families can enjoy almost year-round outdoor living has become even more important. I don’t see that changing any time soon.”
Overall, Johnson expects to see a strong, steady market in 2024. “Builders in central Iowa are a cautiously optimistic bunch, and that’s minimized the extreme fluctuations other parts of the country have experienced. When demand started to slow, builders adjusted their pace to reduce supply, so that’s helped maintain a strong market. We should be in the same or better position as 2024 comes to a close.”
Kevin Johnson, President
Accurate Development
AccurateDevelopment.com
Corey Kautz
Greenland Homes
Although election years typically play a role in the nation’s economy, most experts don’t anticipate that to be the case this year. Greenland Homes’ Corey Kautz agrees. “I really don’t think the election will have much of an effect on the construction industry as a whole or in central Iowa specifically,” he says. “Most people have election fatigue already. Despite the fact that we’ve never been so divided as a country politically, the economy keeps chugging along, and I expect that to be the case through the election season, too.”
Kautz says construction activity in most communities around the metro will likely remain at the same levels they’ve been for the last 12 months. “New construction in Des Moines proper has been slowing down, and that will continue to be the case as builders gravitate toward more builder-friendly communities. Waukee, for one, is expected to be very active in 2024 due to higher lot inventory and builder confidence in the strength of the market in the western suburbs. If I could sum up the available lot situation in one word, it would be ‘concerning.’”
Supply chain and infrastructure challenges have eased in recent months, Kautz says, and pricing also returned to more competitive levels as 2023 ended.
The challenges for 2024, in Kautz’s view, are in the related areas of pricing and labor.
Like other builders, Kautz says the steadily rising costs are quickly pricing buyers out of the market. This is also leading to a larger supply of product over $350,000 and a greater demand for homes below that, which can drive up the price of entry-level homes, further exacerbating the problem.
“Between lot prices and the cost of materials, it gets more and more difficult to build affordable homes. The average home price in the metro has already increased dramatically in the past couple of years. In 2024, product under $300,000 is going to be almost nonexistent,” he says. “The American Dream is becoming harder to achieve for many families.”
The skilled labor shortage remains a concern as well. “This has been an issue that seems to compound year after year and will continue to be an issue for years to come,” he says. “Attracting new people to the trades is the first challenge. Getting them trained and retaining them is a challenge, too.”
He does see positive signs for the coming year, particularly in the area of interest rates. “That’s the question on every builder’s mind, but the general consensus is that we will continue to feel relief as 2024 progresses. If that’s true, the flood gates will open again, and it could quickly turn into a seller’s market.”
That, too, can be both a blessing and a curse. “Lower interest rates will bring hesitant buyers back into the market,” says Kautz, “but increased demand can drive prices even higher. So it’s a mixed blessing.”
Corey Kautz, Visionary / Land
Greenland Homes
GreenlandHomesIowa.com
Jenna Kimberley
Kimberley Development
Kimberley Development’s Jenna Kimberley says, “If I could correctly predict the economic patterns of the future, I’d be swimming in Scrooge McDuck’s pools of gold coins, and my dog would have his own water park. But the closest I can get to a prediction is simply stating that we are cautiously optimistic about the economy and believe construction will maintain a steady pace during 2024.”
Specifically, Kimberley says interest rates along with lot prices and availability will play the most significant role as the year progresses. “Mortgage rates are expected to continue falling, which will only help bring buyers who have been on the sidelines back to the market. As the market slowed over the past year or so, the supply chain finally had the chance to catch up with demand. We’ve been able to keep things moving at a steadier pace and shave our build times, so we’re well-situated if the pace does pick up late in 2024.”
Lot prices and availability will be the other major factor this year. COVID continues to have an effect as the market adjusts to the consequences of unprecedented activity in 2020 and 2021. “We’ve got some higher lot prices right now because of prices that were locked in during COVID market highs,” Kimberley says. “Investment was at an all-time high, which drove the price of land up, and we’re still seeing the effects of that.”
Buyer expectations have also changed as a result of COVID. Kimberley says, “Most of our custom-home clients right now are looking for large estate lots. They want to be able to include hobby buildings or raise chickens. The pandemic helped people realize they want more space. As a result, we have an oversupply of narrow lots at the moment.”
Increased costs for materials, labor, and land have been exacerbated by growing regulatory costs, and will continue to play a part in community growth. “Communities that are not overregulating via zoning code or design regulations have generally seen the most growth in the past,” says Kimberley. “Ultimately, regulatory demands increase the cost of a home as much as 40%, according to a 2022 NAHB Housing Study. Smaller suburbs and outlying towns are going to enjoy more growth as a result because their regulations are oriented more toward property rights.”
Kimberley Development has also noted changing trends in home design, which the builder expects to continue in 2024. “We’re seeing more textures, more stained woods and cabinetry,” says Kimberley. “White cabinets are much less common. Homeowners are also interested in creating a more organized home, using built-ins, custom kitchen drawer storage, and additional cabinetry to eliminate clutter.”
Like other local professionals, Kimberley expects 2024 to see slow, steady growth. “As rates drop, more buyers will come into the market. But we’re also dealing with higher prices and low inventory. We’re buckling in for a tighter year. But ultimately, this is nothing we haven’t been through before in our 45 years in business.”
Jenna Kimberley, Vice President
Kimberley Development Corporation
KimDev.com
Kalen Ludwig
Ground Breaker Homes
Ground Breaker Home’s Kalen Ludwig says one of the most encouraging signs for 2024 is the stabilizing of interest rates, which began as 2023 neared the end. “The unpredictability of interest rates has been one of the hardest factors for home buyers to deal with. That’s especially true of custom-home buyers. Having no idea where interest rates will be when they finish their build just takes buyers out of the market.”
During the last months of 2023, interest rates decreased nearly 1%. Ludwig sees this as a positive indication of what to expect in the year ahead. “From everything I’ve read, most experts expect to see interest rates continue to creep down throughout the year. By late 2024, if interest rates drop into the 5% range, I think we’ll see a buyer pool that will jump in pretty aggressively.”
Anticipating and preparing for that uptick in activity will be especially important for builders and developers. “Right now,” says Ludwig, “there are lots available, but we don’t have an excess supply. For the past year, builders haven’t been making bulk lot purchases, and developers have not been putting in new plats at the usual rate. So we’ve slowly chewed through inventory. By December, builders were starting to make bulk purchases again, prepping for a stronger 2024.”
That builder caution during the previous 12 to 18 months also meant fewer spec homes on the market, which lowered current inventory.
“Homes priced under $300,000 are undersupplied because builders can’t build homes at that price point. Even the higher end of that so-called average segment is pretty strong,” Ludwig says. “We saw more entry-level homes built this last year. If interest rates come down a little, this product will go even faster. But homes over $450,000 are starting to sit a little longer because there are more spec builders working in this price point.”
Factors that had been challenges over the past several years, such as supply chain issues and infrastructure delays, have rebounded. The construction industry in central Iowa is positioned well as we begin 2024, Ludwig believes.
“There are still little hiccups with the supply chain, usually individual ingredients that affect a finished product, but nothing like we saw during COVID,” she says. “It’s starting to feel like what normal was back in 2016–2019.”
Despite some continued caution, Ludwig says most signs point to a better year ahead. “I would expect more total sales than 2023. Lower and more stable interest rates, combined with pent-up demand, should bring a higher number of closed properties. We seem to have escaped an all-out recession, and the job market continues to be good. Inflation is more or less under control.
“2023 was that reset year we all knew had to happen. So if we continue to stabilize and see interest rates lower like most are predicting, I think 2024 looks to be an exciting year for our industry.”
Kalen Ludwig, Partner/Director of Marketing & Sales
Ground Breaker Homes
GroundBreakerHomes.com
Chris Pickard
Sage Homes
“Last year played out pretty much as expected,” says Chris Pickard of Sage Homes. “We were down about 25% from 2022, but that was right where we expected to be. Some months were better than projected, and others were much slower, so we ended the year right on target.”
Heading into 2024, Pickard sees the year as a real growth opportunity for the company.
“The housing market is gaining velocity, and we’re poised as a company to respond to that increased demand.”
Based in Ankeny, Sage Homes has focused its efforts in that community and anticipates that will continue in 2024 along with some activity in other metro suburbs. “There’s been huge growth in the northwest part of Ankeny, but that’s slowing down, at least until infrastructure catches up to development. In 2024 we will start to see that growth shift to the northeast and southeast edges of the city. Des Moines’ western suburbs are still a good bet as well.”
Improvements in the supply chain were also a bright spot in 2023. “Some specialty items still have longer lead times,” says Pickard. “But builders and contractors have gotten better at anticipating those and scheduling projects to deal with any challenges.”
Pickard says lot prices will likely remain static this year, certainly in the first two quarters. “Midway through 2023, developers recognized that the market wasn’t where it was 18 months earlier, so they wisely eased up on the number of lots in development. I don’t expect the pace to drop any further, but it’s also not likely to pick up significantly.”
Because of that, Pickard says entry-level lots may need to drop in price if builders are going to be able to serve that segment of buyers. “Price expectations for that segment are tougher and tougher to meet, and as regulations increase, that magnifies the problem. Even the best intentions of a city’s regulations lead to higher costs, and the HBA has done a really good job of addressing some of the disparities in the market.”
As a company, Sage Homes has tried to serve the midrange home buyer, but Pickard says that gets more difficult to do each year. “Homeowners aren’t always willing to revise their demands as costs increase, so the buyer pool has shrunk. Buyers recognize that the same budget won’t buy the same home it would have three or four years ago. What would have been a move up has become a lateral move, so they’re putting the move on hold to see how the market shakes out.”
Just as he predicts with prices of lots, Pickard expects little change in interest rates during the first two quarters of 2024. “There are mixed views on what’s going to happen with interest rates this year, but most sources expect them to be a bit lower by the second half of the year. That, combined with the steady pace over the past six months or so, gives me a sense of a stable but strong 2024.”
Chris Pickard, Owner
Sage Homes
SageHomesIowa.com