A BRIGHT, IF CHALLENGING, NEW YEAR
Residential new home construction is up and over 85% of commercial contractors are optimistic about the construction market for 2021. Challenges for contractors and wholesalers in 2021 will not be winning the business needed to fuel growth, but managing the business you win.
2020 Housing transactions and home prices outpaced 2019 numbers by a healthy margin with transactions growing by 5.6% and average home prices hitting $342,000. Sales are at their highest level since 2006 making 2020 a record year.
There are multiple factors at play including record low interest and mortgage rates which are still well below 3% and the droves of stay-at-home workers who have driven demand for home purchases. In fact, nationally, the homeownership rate stands just shy of 70%.
From July 2020 through the end of the year, each month had higher home sales than the month before with December home sales a full 22% above the same month in 2019.
This high level of demand, coupled with low inventory resulted in full year home prices 10% higher than the previous year. We haven’t seen a spike in average home prices like this since 2012 when the nation was rebounding from the Great Recession. Additionally, by December, home inventory was at its lowest level since the National Association of Realtors began gathering those numbers. Current supply is down to 1.9 months.
On the new construction front, new home construction is up 12% for the year 2020 resulting in the 11th straight year of increases with total new housing starts having reached nearly 1.4 million units and reminiscent of the levels last seen before the downturn when the nation saw 1.8 million starts recorded for the year 2006.
While housing starts retreated in the immediate aftermath of the beginning of the pandemic, those starts surged in May with increases following each month through the end of 2020.
With single-family starts on an upward trajectory multi-family starts actually declined by more than 3% over 2019. There was a full 14% drop in multi-family starts in December with 389,000 starts reported for the entire year.
Not surprisingly, the South leads the country again in new residential construction starts and in fact accounted for more than half of all new homes built in 2020. Despite steady increases of recent years, the South had an annual gain in new residential construction of nearly 8% with three quarters of the total starts being single family residential. The South’s economy continues to be the economic engine for the country.
In the commercial sector, as 2020 drew to a close, the continued difficulties encountered with the availability of building materials overshadowed concerns of worker health, project cancellations and project delays.
Over 80% of commercial contractors have indicated they are experiencing delays due to the covid-19 outbreak, however fewer than 70% expect the delays to continue into spring of this year.
Still, over 85% of commercial contractors are optimistic about the construction market for 2021.
Finding skilled labor continues to be an issue for the commercial sector, as it is with the residential sector, with 85% of commercial contractors reporting difficulty in this regard.
The general consensus of economists, however, is that there are no key economic or political indicators that would suggest a negative change in trajectory for the economy.
Challenges for contractors and wholesalers in 2021 will not be winning the business needed to fuel growth, but managing the business you win. The ever-present challenge of finding capable, smart and eager employees will be felt in increasing intensity. And once those loyal, “forever employees” are found, managing them for maximum growth becomes the next hurdle.
For insight on good hiring practices, see “How to Win the Hiring War.” For advice on getting your team to all row in the same direction once you have those great employees on board, see “Teaming Up for Takeoff.”