The Monthly New Residential Construction report for April released by the United States Census Bureau in mid-May was ugly, and the numbers reflect a country that is amid a pandemic and economic upheaval. The real challenge for the national housing market will be—when will buyers and sellers be prepared to start engaging the housing market and what will be the overall effect from the economic turndown? Unlike 2008, this economic turndown is not a housing and financial crisis driven event. Rather, it is a health crisis with economic consequences on travel, leisure, retail, and jobs. The overall impact of COVID-19 (Coronavirus Disease) will determine if this morphs into a housing crisis.
In April, new home starts dropped 30.2 percent from the prior month to 891,000 units, which is 29.7 percent below the prior year. In terms of April in the current historical cycle, housing starts have gone back to 2014-2015 levels in one month. Within these housing starts are single-family homes and multi-family homes, which generally represent apartments and condominiums. Single-family homes were down 25.4 percent and multi-family starts fell 40.3 percent from the prior month. It is probably too early to predict, but this could suggest that the interest in building apartments and condominiums is waning, which could push rental costs higher.
Within this report, the government reported new home building permits dropped 20.8 percent from March, but new home completions only dropped 8.1 percent. This suggests that builders continued to work despite the stay-at-home orders issued by many states, but it may come at a price later as backlogs in work could be thinning. It is apparent builders want to work.
The real test for the national housing market is the recovery over a 6 to 12 month trend instead of the first couple of months after the states reopen. Although there will be a bounce in homebuilding, it may not be as strong as other sectors may experience because construction sites did not completely close. For example, most construction sites in Florida remained open and did not miss a day of work on the jobsite. Plus, there is the time factor—it takes longer to build and sell homes than it did 30 years ago.
Expect the housing market to bounce up from its April’s lows, but the weight of high unemployment coupled with a general economic slowdown could push buyers away, creating a slower overall national market. Because this economic turndown is not a housing or financial crisis, the national housing market could bust up into the have and have-nots.
There is little doubt, the huge urban cities will see huge exoduses as companies allow more employees to work for home. Less populated areas that are warm and sunny will be very appealing to potential buyers who faced months of quarantines and lockdowns in a 700 square-foot apartment. Many larger metropolitan areas will probably have housing depressions with plummeting home values while rural or small cities located in warmer climates could see a housing boom.
The problem for middle-class and low-income workers is that people moving to their area will dramatically increase housing costs and exacerbate the problem of workforce housing. This will be especially true in the state of Florida. Before this happens, state and local governments must enact meaningful policies to protect and encourage workforce housing or the state could turn into a land of only the rich.
National housing numbers will be interesting to gauge the total United States housing market. Chances are there will be huge disparities between markets as people seek safety from future pandemics.
Don Magruder is the CEO of RoMac Building Supply, and he is also the host of the “Around the House” Television Show which is hosted weekly on Lake Sumter Television. For more information, go to www.Aroundthehouse.TV.