The local home building industry must work to add more housing to offset rising home prices caused by a lack of inventory.
That’s according to Robert Dietz, chief economist for the National Association of Home Builders, who says the fundamental driver of housing demand, population growth, remains slower in the Midwest at 0.2 percent than the 0.6 percent growth nationwide.
“We do have some pockets of relative strength. Cincinnati and Dayton are areas that are growing twice as fast as the overall Midwest,” Dietz said. “What we see in those markets is that there’s still demand for single-family homes.”
Cincinnati area population is growing 0.5 percent and the Dayton area is growing 0.4 percent.
Payroll employment levels or the amount of jobs for both MSAs continue to improve, with Cincinnati 8 percent above the pre-recession peak and Dayton reaching the pre-recession level, he said.
While population growth and job growth continue, home prices are rising faster than incomes, Dietz said.
“It’s a pretty simple mode. When you have home prices in a local area growing faster than incomes, it’s usually an indication that you need to continue to add supply,” he said during a Tuesday lunch-and-learn event held by the Home Builders Association of Dayton and the Home Builders Association of Cincinnati at the Savannah Center in West Chester Twp. “Cincinnati right now is actually 17 percent higher in home prices than it was at the peak before the Great Recession … and Dayton is actually up 11 percent. These are good examples of markets where home prices are telling us that we need additional housing supply.”
Locally, single-family housing for the Dayton area are predicted to end at 903 based on year-to-date data, up from 649 at the low point of the recession in 2010 but far from the 2,653 permits pulled in 2003. The Cincinnati MSA is projected to end 2019 at 4,230 permits pulled, up from 2,500 at the low point of the recession in 2011 but nowhere near the peak of 11,135 permits pulled in 1999.
Meanwhile, Ohio is projected to end 2019 at 14,967 permits pulled, up from 9,320 at the low point of the recession in 2011 but not close to the peak of 42,703 permits pulled in 2004.
Dietz said the area has “a real relative advantage” in terms of getting businesses to locate to the region: the I-70 corridor, which stretches “from Columbus through Indianapolis and on out to Kansas City.”
“That’s the housing affordability belt,” he said, noting that to additional housing must be built to continue to get businesses to locate to the region.
Housing that is building with density — think smaller houses on smaller lots, such as townhouse-style developments — is a rising trend, Dietz said.
Demographics on both the national and local levels show a great number of millennials will be moving into their 30s and 40s and and that will increase housing demand, Dietz said.
“We know they want to own a home, we know they want a front door, they want a suburban aesthetic, but they want a little more walkability than the neighborhoods that we’ve designed in the past,” he said. “So building with density is not just away to deal with the cost side, it’s also what demand wants.”
Nationwide GDP growth is forecast to be 2.3 percent for 2019, 2.1 percent in 2020 and 2 percent in 2021, all of which are slower than 2.9 percent GDP of 2018, Dietz said. Despite that slowing growth, no recession is forecast to arrive in the near term, he said.
“The probability of a recession for the country as a whole right now is probably one chance in three,” he said. “There were a lot of economists back in January and February of this year who were all but saying ‘100 percent chance of a recession by the time we get into 2020.’ I think most of those economists have backed off that bear-ish perspective.”
Much of that is due to the Federal Reserve pulling back on interest rates, helping rev up the nation’s economic engine, Dietz said.
Ohio’s Real Gross Domestic Product growth sits at about 2 percent, not outpacing the country “but certainly better than a lot of states,” including West Virginia, which saw negative GDP growth, Dietz said.
With interest rates low, it is a good time to purchase a home, providing local home builders can keep up with a rising amount of housing demand, he said.
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