Housing market trends: Expert advice on what to expect and what to do about it

Before you look ahead to another year in construction, you should get a firm idea of what’s happening in the industry. What are the current challenges? What are the opportunities?

The construction industry is at an inflection point – a time that may result in significant changes for how you operate in the coming years.

To give insights on this topic and help builders prepare for the upcoming year, Mark Boud sat down with Buildertrend. Mark is a real estate economist with decades of industry-specific experience. Major builders, land developers and financial institutions trust his forecasts and analytics.

To help builders prepare for the upcoming year, Boud sat down with Buildertrend. Together, we took a hard look at where the industry stands now and what builders can expect next.

What’s the current real estate market forecast?

Historically, big public builders tend to have an advantage especially when the economy takes a downturn.

Bigger builders can write off debt, even if they’re carrying large expenses like land capital on the books. How do they do it? By using economies of scale, a method of maximizing efficiencies to decrease costs. An example could be how construction companies increase buying power – the money you have available to secure resources – by joining a group purchasing network. With homebuilders placing orders of the same supplies, the orders become large enough that the purchasers gain power over the supply pipeline. This means paying less money for the same supplies.

The current economic forecast is a little different. It shows more promise for small and medium-sized builders, who have the ability to act fast when faced with a challenge.

“I see the advantage kind of shifting to the smaller builders,” Mark said. “They tend to be a little bit nimble and a little bit more sensitive to market trends. I think during the next six months, larger builders are going to find themselves stuck with high, costly contracts. Smaller builders are going to be able to move in and take advantage of a small correction in supply.”

Fast reflexes in the construction industry aren’t guaranteed, though, no matter the size of the builder. Research, combined with a growth mindset, is critical to a company being able to adapt to changing markets.

This is where many smaller builders miss a step – they don’t necessarily invest in research the way big builders do.

That’s why Buildertrend works to provide insights and construction industry trends and translate findings for builders – insights like our recently published report on the economic outlook of 2023 for home builders and remodelers. Backed with Buildertrend internal data and industry-wide figures, this report gives contractors a glimpse of the current state of the industry. Plus, the report provides many actionable strategies to help construction companies stay head in the years to come.

“It’s really encouraging that entities like Buildertrend have enabled [small and mid-market construction] businesses to group together,” Mark said. “For educational purposes, for supply line purposes – there are all kinds of advantages [Buildertrend] is providing that have historically only been in the reach of larger entities.”

Are all segments of the housing market experiencing the same economic challenges?

Many times, the housing market is analyzed as a whole. Still, different segments are seeing different challenges and opportunities as the market shifts. Read on to learn more about these other segments and how they’re impacted by the current economy.

The high-end housing market

Sometimes called luxury homes, the high-end market includes the top percentages of properties in cost, materials and location. Although supply chain issues have impacted custom build timelines, buyer demand remains strong.

“The high-end market should not completely fall apart,” Mark said. “High-end buyers are not often as dramatically impacted by high mortgage rates. Smaller builders who concentrate on custom homes should do fairly well.”

The entry-level housing market

Sometimes called starter homes, the entry-level market includes the smaller and lower price range of homes in the market. It’s estimated that there are half as many homes available in this category now than in 2021.

“As prices come down a bit, entry-level buyers will be able to participate in the market,” Mark said. “Builders who try to tap into that market will see a lot of demand waiting for them. You may have to work with banks to offer buy downs or find other ways to lower the monthly cost of ownership. Still, there’s enormous opportunity in the entry-level market.”

The move-up housing market

Move-up buyers are people who buy a house that’s larger – and usually more expensive – than their current home. Boud expects this category will experience the least activity in the coming months.

As mortgage rates increase – some buyers won’t be willing to sell their existing home for a more expensive house and higher mortgage rates. This creates potential for smaller builders pivoting toward the home renovation market.

“I think we’re going to see more and more people investing in renovation activity,” Mark said.  “If people are staying in place, then it’s much easier to take a home equity line of credit (HELOC). Even factoring for interest rates, there will be a significant portion of the market working to improve their valuation and equity. Smaller builders can definitely benefit from that.”

Expert takeaways

Although market changes can seem never-ending, there are two action items you can take now to prepare your construction business for the future.

1. Look for opportunity in your market

Different buyers have different demands depending on location, budget and stage of life.

The move-up buyer trends are a prime example this. Demand from potential home buyers in this market are slowing down as mortgage rates increase. Many typical move-up buyers aren’t seeing the value in risking a move to a newer, nicer home when they’ll have to pay more in both mortgage and interest.

Builders who’ve had success in this market in previous years may need to think about diversifying services. Renovation services, for example, still enable you to tap into this market segment, even if a buyer isn’t considering new construction.

Another opportunity could be the entry level market, where demand is high but inventory is incredibly low. One option could be exploring affordable housing options, which help save on both buyer and builder costs. Modular accessory dwelling units (ADUs) could be a potential solution, depending on approved zoning in your area.

Search for potential areas of opportunity while you’re strategizing for your upcoming year. Then, take action where it makes sense for you and your local building market. That way, you’ll be able to keep profit margins up even as the larger economy dips.

2. Invest in research

That doesn’t mean you have to sink a bunch of money into third-party organizations. Research can take shape in a lot of different ways.

If the biggest challenge you’re facing now is labor shortages, survey your existing staff. It could help pinpoint low-hanging fruit in your hiring and retention strategies to help keep your contracts staffed.

A referral by a top-performing construction worker, for example, can be a great source of a retainable, quality new hire. Rehires are another potential staffing source. If a former employee left on good terms and you’ve made improvements to your employee benefits or compensation programs, reach out to past employees for potential rehire activity.

You don’t have to shoulder research responsibilities on your own.

Group purchasing organizations like CBUSA can inform you of changing buyer demands. Plus, they can help track supply chain movements and forecast for procurement.

Buildertrend also provides ongoing resources and reports to keep you informed of big industry trends.

No matter how you do it, do your research and stay informed.

Start with Buildertrend construction management software

The housing and construction markets are constantly changing, but you don’t have to face those changes alone. On top of providing industry insight and expertise, Buildertrend offers the best project management, financial and communication tools for builders. No matter how the industry is changing, these tools are available to help your business thrive.

Are you interested in learning more about the changing construction industry? Check out our data-packed macroeconomic report, featuring more insights from Mark Boud.