Uptick in homebuilding won’t bring enough supply to trim prices: UCLA Anderson survey

Interest rate hikes help ease supply chains; “shallow growth trend” for economy seen

Los Angeles /
Jun.June 06, 2022 08:30 AM
UCLA's Jerry Nickelsburg (UCLA Anderson School of Management, iStock)
UCLA’s Jerry Nickelsburg (UCLA Anderson School of Management, iStock)

Homebuilding will speed up for the rest of the year in California and the rest of the nation despite a crimp in sales from rising interest rates, proceeding at a pace that will slow price increases rather than send them downward.

That’s a key take away from the most recent quarterly report from then UCLA Anderson School of Management, which found that hikes in interest rates have trimmed some demand in the housing market but also provided a measure of help to developers and homebuilders by easing pressures on supply chains. The report projected that 124,000 net new units––including single-family, multi-family and accessory dwelling units––will be permitted throughout California for the rest of this year, wrote Jerry Nicklesburg, director of the UCLA Anderson Forecast.

But don’t expect the spurt in home building to make much of a dent in the state’s housing crunch. The pace of building in the private sector is insufficient to change the dynamics behind concerns of a general lack of affordability in California’s housing market, Nicklesburg wrote.

An increase in homebuilding also is forecast on the national level, but it won’t do much to bring housing prices down in the broader market, according to the forecast. Inventory will continue to be low in part due to underbuilding of the past decade and an expected surge of millennials seeking to buy homes.

The expected result is a continued increase in home prices “but at a more measured rate compared to the past two years, and slightly below the rate of home price appreciation of the past decade,” wrote Leo Feler, a UCLA senior economist.

The report also predicted that the Fed will raise interest rates steadily for the rest of the year in continued attempts to slow down inflation. The June report forecast that U.S. economic growth will slow to 2.8 percent this year. Consumers’ belt tightening from rising interest rates spurred a revision from a previous forecast of growth of 4.3 percent in 2022, which was forecast in the center’s March report. Nicklesburg characterized the current state of the economy as a “shallower growth trend” rather than a recession.





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