From the ProDealer Industry Summit, forecasts for growth

Top economists shared their positive outlooks for 2021

From the ProDealer Industry Summit, forecasts for growth.

By Andy Carlo

What’s ahead for residential and construction in the COVID-19 era looks to be optimistic.

National Association of Home Builders NAHB) Chief Economist Robert Dietz provided an uplifting outlook in regard to the near-term future of housing during the 2020 ProDealer Industry Summit.

Dietz forecasts that single-family starts will rise 6% in 2020 and close to 950,000. This is a notable improvement over previous expectations but still below the 1.1 million starts needed to keep up with demand, according to NAHB estimates. The projections are a big upswing from what the NAHB was predicting a few months ago.

The NAHB/Wells Fargo Housing Market Index (HIM) reached 90 in November, which is a five-point increase over October and a data series high. In contrast, the HMI had a reading of 30 in April as the COVID-19 crisis heightened. “Confidence now is almost off the charts,” Dietz said.

High builder confidence is stemming from heavy buyer traffic, a lack of existing inventory, pent-up demand, and sales from homes that have yet to be started.

In the meantime, the median new home will grow in size as more people use their homes for added purposes, including home office space. Citing Google Trends data,

Single-Family Starts Choppy conditions ahead but a growth trend continues

2,000

1,800

1,600

1,400

1,200

1,000

800 80% Fall

600

400

200 Through to Current: Mar 09 = 353,000 Jul 20 = 940,000 +166%

0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Year

2017

2018

2019

2020

2021

2022

Units

851,000 872,000 893,000 947,000 971,000 993,000

Percent Change

8%

2%

2%

6%

3%

2%

15 16 17 18 19 20 21 22

Dietz also noted that people want more room for pets as adoptions have increased during the pandemic.

Dietz forecasts single-family housing growth of 3% in 2021 and 2% in 2022. Single-family rental, which is only about 4% to 5% of the overall market, is expected to see gains as well and presents another opportunity for growth.

The economist forecasts 4% remodeling growth for 2020 followed by increases of 3% in 2021 and 2% in 2022. “Remodeling has clearly been a bright spot in housing,” Dietz said.

The latest set of forecasts from the NAHB is far removed from where the U.S. economy toppled to in the spring.

The second quarter of 2020 proved to be one of the worst periods of the economy since World War II due to government mandated shutdowns in response to the pandemic. The end result was a negative 30% growth rate for the quarter.

Dietz has revised his GDP growth rate for the third quarter to a 25% increase, noting some estimates place it at 30%. Overall, Dietz said that it could take until 2022 to overcome “the Great Disruption.”

“This was a real artificial downturn,” Dietz says.

More positive news is the near $400 billion projected to be spent on building materials next year. This includes a big shift toward singlefamily home construction spending with total growth at about 10%.

John Burns, CEO of John Burns Real Estate Consulting, delivered the forecast at the summit and said about 25% of next year’s growth will be spending on single-family home construction materials.

This year took a big hit due to the cycle time of home construction being delayed by the pandemic.

“And that cycle time is going to result in a big-time boom next year,” Burns says.

Part of Burns’s overall spending forecast includes a surge in building materials spending due to the number of homes that were built in the early 2000s, soon approaching the age of 15 to 20 years old, and due for remodeling projects.

About 46.4 million homes were ready for a remodel in 2015 with about 48.6 million due in 2020. But looking ahead to 2022, more than 51 million homes will require updates and upgrades.

“All of that (building) boom from 20 years ago should result in strong repair and remodeling,” Burns says.

Burns is projecting big project remodeling to fall 2% next year but rise 8% in 2022. Single-family homes under homeownership should rise 3% next year, however, with the falloff occurring in rental homes.

Looking ahead, Burns said repair and remodeling spending should grow by about 6% in 2021.

Multifamily spending will be a drag on spending, though. Pointing to August indicators, multifamily permits were down 14% as starts declined 3% on a month-over-month basis. In contrast, single-family permits rose 6% as starts increased by 4% in August.

Custom home builder orders are strong, Burns said, as multifamily construction declines. Burns notes that his firm was already forecasting a multifamily decline due to previous overbuilding in past decades.

Another bright spot for residential construction and remodeling is who is

unemployed and who is still working. “Generally, people who are well qualified and collegeeducated are doing better,” Burns said. According to Burns, the current unemployment rate is understated because 3.9 million people between the ages of 24 and 69 have dropped out of the labor force. Burns said he believes many are staying home due to homeschooling children during the pandemic and will return to the workforce eventually.

And while most job losses have been temporary, from 1.4 million near the start of the year to 26 million in April, permanent job losses are about 2.5 million, according to Burns. Roughly 6.8 million workers lost their jobs during the Great Recession compared to about 3.8 million as a result of the pandemic.

Permanent unemployment peaked at 10.5% during the Great Recession with that figure standing at 6.1% now. But job losses have been concentrated in lowerincome brackets, which have the least impact on home builders, Burns noted.

In the meantime, money is flowing into single-family rental construction.

“Rental (home) growth around the country isn’t falling anywhere, unlike apartments,” Burns said.

American Homes For Rent is building at least 1,500 homes per year and is now the 40th largest home builder in the country. Burns said that the home rental market is “no longer an existing-home game, it’s a new home game.”

Among current building materials categories, Burns said that “the decking industry is on fire” because consumers are spending money on quality composite decking as they remain in their homes longer. Other strong categories including lumber, HVAC, lawn and garden, and roofing products.