With the U.S. market for new homes a silver lining in the recovery from initial COVID-19-related economic downturns, it is incumbent upon builders to understand where home construction stands…and perhaps, more importantly, where it may be going.

Robert Dietz, chief economist for the National Association of Home Builders (NAHB), anticipates that demand will remain strong in light of low mortgage interest rates, an improving labor market, and a suburban uptick in terms of geographic preferences.

He said in a recent report, “The suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates.” Additionally, Dietz said, “The important story of the changing geography of housing demand is benefiting new construction. New home demand is improving in lower density markets, including small metro areas, rural markets and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real.”

As further reported by MarketWatch, buyers are “encountering a dearth of existing homes for sale in a continuation of a trend that was seen at the beginning of the year before the pandemic. With few existing homes available, more people are turning to the [construction] market for new homes.”

New homes, in fact, represent a bigger share of homes for sale: 1 in 5 in April 2020 as compared with 1 in 6 in April 2019, as noted in a recent Redfin report. The report explains additionally that the “supply of existing homes is shrinking fast with some homeowners delaying plans to sell and others pulling properties off the market because of the pandemic.”

To complicate matters, though, lumber prices are at a two-year high and costs are rising for other building materials as well. As NAHB reported in September 2020, since mid-April, lumber costs for the average single-family home have soared more than 170%. In spite of those numbers, homebuilders remain confident, no doubt bolstered by the continued interest among prospective buyers.

In fact, the NAHB/Wells Fargo Housing Market Index (HMI) rose five points to a reading of 83 in September and then two more points to 85 in October, the highest in the series’ 35-year record. (Index readings over 50 are a sign of improving confidence.)

What Should Builders Know

While there are wide-ranging opinions on how builders can best position themselves, a few key industry trends are emerging in the face of COVID-19, including the upsurge in demand for single-family housing, most notably in the small metro area suburbs. A Q2 NAHB Eye on Housing report shows an increase in the market share for single-family construction in low density areas (small metro core and suburbs, small towns and rural markets), and that the fastest growing geographies for apartment construction were found in the exurbs, small metro suburbs and rural areas. Additionally, the market share for multifamily construction in low density areas (exurban areas of large metro markets, small metro core and suburbs, small towns and rural markets) saw a small increase year over year. 

Other notable trends include longer build times resulting from supply chain disruptions, and an increase in “smart” construction. Smarter planning and design, in fact, is among the most critical moves builders can take now.

The World Economic Forum posits that the pandemic is pushing industry leaders to find new, safer and smarter ways of building homes (and offices…which, these days, sometimes overlap). This can be accomplished by utilizing such solutions as prefabricated construction “powered by digital technology,” which can support safe, sustainable and high-quality housing “at speed.” Additionally, “using big data and artificial intelligence throughout the design and construction process can transform the building sector and help…provide sustainable, affordable housing for all.”

Despite the real challenges and uncertainties facing the industry as a result of the COVID-19 pandemic, one thing remains clear: The demand for housing is not letting up any time soon, so builders should be ready to prioritize safe, smart practices.