Remember back in the spring, when the pandemic was just making its presence felt? Many of us thought that this would put the housing market on hold, or – at the very least – depress prices. We couldn’t imagine marketing homes in the middle of a pandemic, much less entering into a contract to build new. Yet, in fact, seven months on, that has not turned out to be the case.
Recent surveys have shown that, in many parts of the United States, new home construction has seen a steady increase in recent months and October statistics show that building permits – a reliable indicator of future construction – saw a 2.8% year-on-year increase, with construction starts up 4.9% over September.
The US Census Bureau and the US Department of Housing and Urban Development published statistics on November 11, 2020 that also show housing units authorized by building permits in October rising at a (seasonally adjusted) rate of 2.8% over October 2019 with 1,545,000 new building starts, the greatest increase since the recession.
Image credit: US Census Bureau
What is the reason for this? Quarantine, working from home, and home schooling led many of us to spend far more time in our homes than normal. Not only that but many parents found their spouses also working from home and their children needing to be home schooled. Suddenly, families found their current living space too small to accommodate all of these needs. As spring turned to summer, it was clear that outdoors was the preferred environment, but many families were living in high-rise condos, in densely populated urban centers, with only a tiny balcony as available outdoor space. No longer needing to live close to work, homeowners now found the idea of a more spacious home in the suburbs, with a generous backyard and room for a home office – or two – highly desirable.
This situation was only abetted by the availability of record-low mortgage rates, making, at least for those people still in employment, the possibility of a larger living space, away from urban centers, suddenly affordable. The move away from the city was on. However, demand rapidly outpaced supply; would-be buyers found few homes for sale, triggering a demand for new builds. Little wonder, then, that we are experiencing an upsurge in new home construction in many parts of the country. With skilled labor, materials, and available undeveloped lots all in short supply, the construction industry is actually struggling to keep up with demand.
According to a MarketWatch article written by Jacob Passy, US builders started construction on homes at a (seasonally adjusted) annual rate of 1.5 million in October. The upsurge in housing statistics is driven by a 6.4% rise in single-family homes, against a 3.2% dip in multi-family accommodation. The release on November 17 of the confidential index of the National
Association of Homebuilders shows new building starts inching higher for four months now. However, the rise in new building statistics is not nationwide; the North-East part of the country is not experiencing this all areas, despite clear rises in the South, West, and Mid-West.
The combination of historically low interest rates increasing affordability, and the desire by many families to enjoy increased space, especially outdoor space, has resulted in this upsurge in new builds and a booming construction industry. This suggests that real estate continues to be a highly attractive investment, regardless of the pandemic.
Sources:
1. Florida Realtors November 18, 2020
https://www.floridarealtors.org/news-media/news-articles/2020/11/home-construction-increased-49-oct
2. Jacob Passy – MarketWatch November 18, 2020