Challenging times for homebuilders and real estate companies

Construction and real estate sectors are among the most cyclical sectors. Sensitive to changes in the labour market, prices in commodities and, first and foremost, the interest rate environment and accessibility of credit, they are currently under strain. And things are unlikely to get any better in 2024.

The residential market is facing a double constraint, on both supply and demand. The rise in interest rates has resulted in a rapid deterioration of demand, as households cannot afford to buy houses, especially as home prices had gone up.

Added to this is a global shortage of labour, the biggest impediments to construction cited by European companies from 2021 to late 2023[1]. This is echoed in the United States where job openings in construction are almost 30% higher than before the pandemic, and in Japan where 60% of construction companies mentioned shortage of labour according to a 2022 survey^[2].

All these initial supply-side issues, along with the rapid increase in interest rates over the past two years, have resulted inconstruction costs risingfrom all avenues: materials prices have gone up, wage pressures have intensified, and financing costs have skyrocketed.

[1] Source: ECOFIN, Coface

[2] https://www.statista.com/statistics/1113127/japan-full-time-employee-labor-shortages-among-companies-by-industry/