Residential Construction in a Time of COVID-19

A review of recent industry headlines reveals that we are living through unprecedented times: building materials post record monthly decline, credit for builders tightens, millions of jobless claims filed, pending home sales sink. Like virtually every other economic sector, residential construction has been impacted by the coronavirus’ rapid spread across the country. In late March, the Department of Homeland Security designated construction of single-family and multifamily housing as an “Essential Infrastructure Business.” Although many states and localities followed the guidance and included construction on their list of ‘essential’ businesses, the sector has continued to be disrupted. Statewide shelter-in-place orders and social distancing have negatively impacted demand. The latest release from the Census Bureau and the US Department of Housing & Urban Development shows a steep decline in single family housing starts in March, 22% below the February numbers.

In addition to questions around whether workers could safely be on job sites, builders have also been watching the volatility in the mortgage markets. While some lenders have tightened credit standards, interest rates remain low and mortgage applications have jumped recently. Builders who have captive mortgage units are seeing some relief because the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will be able to purchase certain loans in forbearance.

Finally, builders are dealing with the dual challenge of labor and supply chain. Unemployment figures in the construction labor market have mounted and some contractors are experiencing issues with obtaining building products and materials.

Uncertainty seems to characterize our new normal. While many states are beginning the slow march toward reopening, it’s unclear how long it will be before buyers feel comfortable entering the economy. Analysts believe that the housing market may have a ‘see-saw’ recovery, rising over the summer and declining again in the fall if the virus returns.

1 Advisory Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19, Department of Homeland Security, March 28, 2020.

1 Monthly New Residential Construction, HUD & Census Bureau, March 2020

1 FHFA Announces that Enterprises will Purchase Qualified Loans in Forbearance to Keep Lending Flowing, Federal Housing Finance Agency, April 22, 2020.

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