The path to housing recovery largely depends on the adoption of job site and public health policies.
Published May 14, 2020
Much of the discussion about the economic recovery as the number of COVID-19 cases subsides centers around some letter of the alphabet that describes the shape it will take. The Wall Street Journal this week featured an article I highly recommend reading as it describes the graphic details of the possible recovery scenarios. Home builders tend to be an optimistic group and had hoped for a V-shaped recovery with normal business returning to full speed by the end of the year. Sure, I’d like to see that happen, but realists and pragmatists like myself see the recovery following the W-shape – and it may be a long while for housing to get back to its position as we entered 2020.
Construction Processes Will Continue to Be Disrupted
The possibility of a resurgence in the virus is widely predicted until a vaccine becomes available. An initial surge of home building beginning 3Q20 may be followed by a setback if the virus makes an encore appearance later this year.
Tasks can’t be performed the same way as they have in the past. Builders, lenders, and brokers are searching for ways to go “contactless.” Distancing will become the norm via technology. Those providing the right technology will prosper. There is an opportunity here.
Increased safety standards to stop disease transmission are being implemented on job sites, offices, and all along the supply chain. The cost will be significant and can’t be absorbed by the builder and supplier. These actions will increase the cost of housing eventually reaching the consumer.
The construction process will take longer. Cycle time will be affected by safety and health concerns. Scheduling will be expanded to make sure social distancing is maintained.
Planning time will increase as government agencies will be slowed by numerous issues the pandemic has brought about.
Demand for office space will be reduced as more companies find that it is efficient for some staff to work remotely.
Builders will likely follow a build-on-order strategy waiting for demand before increasing supply. The housing shortage will be extended. Affordable, attainable housing will again take a backseat.
Will any builder ever find a way to make off-site built housing work on a mass basis that is acceptable to the local governments and the marketplace?
Expect Ups and Downs
In conclusion, while the virus may give us a head fake of slowing down, the chances of a resurgence of COVID-19 are significant. With what is on the horizon in response to the pandemic, new homes are a bargain today. Short supply and rising costs will continue to push prices up with a new layer of regulation. The recovery will have its ups and downs. Tread in these unknown waters knowing there is a rocky bottom.
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About Jeff Whiton
Jeff formerly headed operations for Lennar and KB Home in Colorado building nearly two per cent of the state’s total single-family housing stock. He was honored as Colorado’s Home Builder of the Year in 2001. Whiton also served as the CEO of the Home Builders Association of Metro Denver for eight years reviving the association from near bankruptcy after the Great Recession.