The housing market has one of the farthest and deepest reaches into the American economy because it dictates where people live, how much wealth they can accumulate, and their ability to be mobile for work or changes in life. Additionally, because housing is onsite local construction, the impact on job creation is significant. Because so much is tied directly to the health of housing, everyone always asks me, “What is going on in construction and the housing market?”
The best word to describe the current housing market is “uncertain.”
First, it depends where you own your home. For instance, after the COVID-19 pandemic and civil unrest, the housing markets in the big cities are almost toxic. Indications are there is a seismic shift in housing paradigms as it relates to urban housing, and the millennials who just six months ago wanted their tiny apartment and condominium adjacent to their coffee shop and place of employment are scrambling to evacuate the big cities.
Home demand in the suburbs and country is picking up significantly, especially if reliable internet service is available. Large home offices in the metropolitan areas will give way to working from home, which can be done anywhere. In Central Florida, once the COVID-19 issue is resolved with either a vaccine or treatment, or both, expect a housing boom with much higher pricing. The only caveat would be if the country drops into an economic depression.
In summary, if you are an investor in commercial housing real estate in a large metropolitan area—I am sorry for your loss. On the contrary, if you have a home in the suburb or country that is near a major city— the price of business is picking up.
According to the United States Census Bureau, in May 2020 housing starts in America were down a whopping 23.2 percent to 974,000 starts versus one year prior. However, the median home price remained high at $317,900. This indicates that while starts are down, many people think this is temporary and that is the reason why median home prices have not cratered.
New home sales for May were up 12.7 percent from the prior year. Although that number is good, it potentially shows slower demand because pent-up business should have driven these numbers higher. The next few months this summer will determine where the housing market is rebounding as it relates to the prior year. The job market will need to vastly improve if housing is to grow beyond the current levels, and the data points are not encouraging.
Since April 2005, RoMac Building Supply has charted monthly the price of a 2,200 square foot home. Each month, the company releases a report to builders on the wholesale movement of pricing. This is the best snapshot in America on the true cost to build a home and allows builders to prepare future pricing. The RoMac Building Supply Whole House Commodity Index for June increased 3.1 percent from the prior month and is 8.0 percent higher from the prior year.
On paper, these numbers do not make sense. Housing starts dropped 23.2 percent versus the prior year, yet the price to build a home went up by 8.0 percent. The question is, “Why?”
The reason is simple—the COVID-19 pandemic has greatly reduced inventory production capacity as manufacturers and mills adjust outflow for the huge decline in business. A lot of companies have been hit with the coronavirus outbreak, which has significantly hampered production. Curtailments in production because of the coronavirus outbreak and economic shutdown in factories are creating spot shortages. While material prices will eventually moderate, do not expect significant drops until the coronavirus issue is resolved and after hurricane season.
Tossed into all these factors is the uncertainty of COVID-19. The recent spike in cases is creating fear and may delay or subdue the rebound in the housing market. Now is the time for home buyers and sellers to have patience and not panic, because the markets will stabilize.
One thing is for certain—nothing is for certain.
Don Magruder is the CEO of RoMac Building Supply and host of Around the House.