Significant Slowdown Seen for New Construction, Remodeling
WASHINGTON, DC — The nation’s housing and remodeling markets are expected to see a significant slowdown over the next several months, although residential construction is among the sectors that could see a faster rate of recovery than other industries, according to a number of major trade associations.
Trade associations including the National Association of Home Builders, the National Association of Realtors and the National Kitchen & Bath Association issued that forecast in recent weeks, as plans to reopen the U.S. economy were underway in a growing number of states.
But despite the optimistic long-term outlook, the short-term impact of the coronavirus pandemic on the nation’s housing, remodeling and kitchen/bath markets is expected to be substantial – the result of growing job losses, shaken consumer confidence, disruptions in the product supply chain, stock market volatility and government-mandated COVID-19 mitigation efforts.
Among the housing-related economic news tied to COVID-19 in recent weeks was the following:
Owner expenditures for home renovations and repairs are expected to decline at least through the first quarter of next year as the result of fallout from the COVID-19 pandemic, according to the Leading Indicator of Remodeling Activity (LIRA), a quarterly report issued by the Joint Center for Housing Studies of Harvard University.
Prior to the COVID-19 outbreak, the residential remodeling industry had experienced nine consecutive years of growth, and the LIRA had pointed to additional gains in home-remodeling spending, with projected annual growth of 3.9% by the first quarter of 2021. In contrast, the latest data point to spending declines this year “with further worsening into 2021,” the Cambridge, MA-based Joint Center said.
“While there is still considerable uncertainty surrounding the near- and longer-term impacts of the pandemic, the best available evidence suggests substantial downturns in key remodeling indicators of new home construction, home sales and values of existing homes over the coming quarters,” said Joint Center Managing Director Chris Herbert. “Homeowners who are concerned about losses of income, home equity and other forms of wealth are anxious about making large investments in improving their homes in this economic environment.”
Kitchen & Bath Activity
While a significant number of residential remodeling projects have been cancelled or postponed since statewide shutdowns began as a result of the COVID-19 pandemic, “the good news is that the remodeling sector will rebound quickly” once homeowners allow design professionals and contractors back into their homes, according to officials tied to the National Kitchen & Bath Association.
According to John Burns, founder of John Burns Real Estate Consulting, a research partner of the NKBA, the ongoing coronavirus pandemic is also more likely to result in the cancellation of lower-ticket residential-remodeling projects, as well as projects involving clients who are younger, perhaps first-time homeowners. In contrast, older homeowners, who are generally more established and who have more equity in their homes, as well as more assets at their disposal, are more likely to merely postpone projects until the current public-health crisis has passed, Burns said.
The Joint Center for Housing Studies of Harvard University also pointed to several “positives” emerging for housing and remodeling from the current public-health crisis. Among them:
- Much time spent at home often results in thoughts of future remodeling.
- A “cocooning” sentiment is likely to reemerge.
- The economic slowdown should ease labor and material cost struggles.
- Lower interest rates make financed projects more affordable.
- Lower ticket projects/upgrades are likely to experience smaller declines.
- There has been an increase in bid requests for products related to health and safety in the home.
According to Robert Dietz, chief economist for the National Association of Home Builders, “while the virus is severely disrupting residential construction and the overall economy, the need and demand for housing remains acute. As social distancing and other mitigation efforts show signs of easing this health crisis, we expect that housing will play its traditional role of helping to lead the economy out of a recession later in 2020.”
The momentum exhibited in the housing market since the 2008 Great Recession “has completely reversed itself” over the course of just several weeks, according to a report by the American Institute of Architects.
AIA surveys reveal that architects and contractors are reporting a host of issues that are depressing the industry’s ability to build and remodel homes, including state or local government-mandated halts to nonessential construction activity; difficulty in obtaining building permits, inspections and certificates of occupancy; lenders hesitant to make construction loans or write mortgages; delays or cancellations by suppliers in delivering building materials to jobsites; homeowners requesting project holds, particularly for projects where homeowners would need to interact with construction crews; and consumer nervousness about proceeding with projects due to loss in wealth from stock market declines and job losses.
Despite an expected slowdown in spring real-estate business activity, many realtors “remain hopeful for a post-pandemic market rebound,” says Lawrence Yun, chief economist for the National Association of Realtors.
“The majority of realtors believe buyers and sellers will return to the market within months, as delayed transactions following the end of the health crisis,” Yun said. “Home sales will decline this spring season because of unique economic and social consequences resulting from the coronavirus outbreak, but much of the activity looks to reappear later in the year.”
Yun added that most surveyed realtors report that their clients haven’t reduced listing prices to attract buyers, a finding that “suggests interested home sellers are remaining calm and avoiding panic selling during the uncertain economic environment brought about by the coronavirus pandemic.” ▪