Building on Housing Market Strength After Coronavirus
There is no doubt that we are in the midst of unprecedented uncertainty. The literal health of the U.S., as well as the health of our economy, is in question, with changes coming every day. Unemployment numbers are up; the stock market is down (then up, then down). Some businesses are shuttered, at least temporarily. But, all indicators for the housing market, which was strong before this health issue arose, show that it will rebound quickly…and strongly. Will your brand be ready to meet those demands?
Here are a few things to keep in mind as you weather this storm and look for ways to prepare now for the eventual reemergence of the building market in—hopefully—the not-so-distant future.
For the Housing Industry, This is a Public Health Disruption, Not an Economic One
Yes, this is a big public health issue that must be taken very seriously. Across the United States, and across all business sectors, companies and employees are social distancing: stay safe, stay home, save lives. While this disruption will impact business, it will affect some industries more than others, i.e., restaurants, hospitality, travel and entertainment. But that doesn’t mean this is the same as the last recession from a decade ago, which was fueled by a banking crisis and the loss of housing wealth. Today’s sudden income loss and pausing of business as usual doesn’t necessarily represent a long-term downturn, particularly for construction.
One reason to be optimistic, according to NAHB, is the recently passed $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, which includes several provisions to help small businesses and those engaged in the residential construction sector.
The Housing Market is Strong
It was strong before this disruption and, while it will be impacted in the short-term, it will come back strong. NAHB’s Chief Economist, Robert Dietz, says: “Given the sharp nature of the 2020 downturn (and its biological rather than financial or economic cause), we are forecasting that, after stressful second and third quarters for the year, the fourth quarter should host a V-shaped or marked rebound.”
It’s true that normal activity is in a state of flux, but there is reason to be cautiously optimistic. While Dietz predicts that the pace of new home sales will decline during the second quarter “due to the impacts of higher unemployment and shutdown effects of parts of the economy, including elements of the real estate sector in certain markets,” he adds that “given the momentum housing construction held at the start of 2020, the housing industry will certainly be a sector leading the economy in the eventual recovery.”
This is underscored by recent Freddie Mac data showing that the U.S. housing market is currently under built by approximately 3.3 million homes. Regardless of this current crisis, that fact remains, meaning the opportunities for builders will continue to be relevant, in spite of the current adversity.
Particularly of note is the influx of first-time homebuyers due to millennials finally entering the market. In 2020, millennials will be buying the bulk of real estate in the U.S., according to Realtor.com’s “2020 Housing Market Predictions.”
Millennials comprise the largest generation in the U.S., according to Pew Research, and they are now just coming to the age where they are ready to purchase homes. Realtor.com’s senior economist, George Raitu, recently told CNBC’s Make It that this age group is now starting to have families and their preferences for living arrangements have shifted to home ownership, remarking, “Considering how many young people are coming of age to buy, right now we are underbuilt by about four million homes,” indicating that what stands in the way of homeownership for the demographic is a scarcity in a supply of homes.
Builders are Moving Forward and Need a Strong Supply Chain
Building is moving forward in most markets. In fact, many markets have declared construction sites an essential business, with different states setting varying guidelines. But most have deemed construction, including home building, essential. An NAHB map shows where home builders and contractors may continue working. NAHB will update this map as more states issue stay-at-home orders.
A March “COVID-19 Business Impact Survey” put out by ProBuilder, shows that ceasing work on homes and projects in progress and those not yet started have leapt up for some builders and remodelers (with public uncertainty as the most disruptive force), though most still claim to have made no changes in production or sales activities.
To keep builders moving forward in light of the housing gap, the availability of building materials is a key factor. In fact, the ProBuilder survey reveals this is the third highest worry behind public uncertainty and personal/family priorities.
Builders are motivated to forge ahead, with land positions a driver. During this time of disruption when many builders are trying to move forward, it is important that the industry maintains a strong supply chain.
NAHB does share that, given the situation, builders do need to be prepared for slowdowns in the supply chain and the possibility that building material prices may increase. NAHB suggests paying particular attention to contracts, with builders considering adding an escalation clause. Additionally, NAHB’s overall advice: “Think about your business, evaluate your supply chain, and identify other options in the event some of your materials are delayed or your costs increase. Have a plan in place to handle potential supply chain disruptions.”
Professional services company Accenture has recently put out a report with some general guidelines regarding supply chains during this crisis, suggesting that a “continuous cycle of risk mobilizing, sensing, analysis, configuration and operation will help companies adapt supply chains and protect communities. …This approach will also build greater responsiveness and resilience into supply chains to protect against future disruptions.”
Be Ready Now and in 90 Days
Leading manufacturers should remain strong, over communicate with customers, and seek ways to help builders complete their projects (including timely delivery of building materials, promotional offers for product discounts, financing or shipping, and virtual training). Think through customer communication plans now and for the next 90+ days. Look for ways to stay in front of your customers now and help them keep their business moving forward. Consider new communication formats that will resonate with your customers, whether that means digital (emails, online content, ads), virtual meetings and chat rooms, or other strategies. Manufacturers that successfully do this will emerge as leaders and take market share.
While only time will tell how the coronavirus pandemic will ultimately impact the housing market, it’s clear that the predictors point to positive prospects. Staying engaged with your customers, paying attention to the market, and thinking ahead will help position you to emerge as a leader from these challenging days.