The NAHB’s chief economist Robert Dietz has had a rough spring. No worse than any home builders or remodelers suffering the effects of COVID-19 in their operations, of course, but one that required him and NAHB to unexpectedly and quickly pivot to understand and explain an economic downturn almost no one saw coming after painting a rosy picture for the housing industry at the International Builders’ Show in late January.
Now, more than two months into an economic downturn that in many cases rivals the worst of the Great Recession, Dietz and his team are working to help builders make sense of the various coronavirus restrictions and their impact on the housing industry, and suggest a game plan for how builders can look at the next two months, the next two quarters, and the next two years coming out of it.
Pro Builder: How does this recession compare to the Great Recession?
Robert Dietz: Well, it's occurring in a much shorter period of time, and the magnitude of some of the economic declines are actually greater than those during the Great Recession, such as GDP [gross domestic product] and employment. But where that downturn was a financial crisis that snowballed into an economic crisis and caused a massive overhang of housing inventory and related issues, the industry going into COVID-19 was in a totally different position.
PB: How will housing’s relative strength coming into 2020 help in a recovery?
RD: I’m confident that housing, along with construction overall and manufacturing, to be one of the sectors that helps lead an economic rebound. Housing is usually about 15% of GDP and is a proven job creator, and that’s been its traditional role in recovering from previous downturns, except for the Great Recession.
PB: Any red flags?
RD: I am concerned about the prospects for private builders obtaining money for land and construction once we come out of the pause, and that depends on the condition of regional and community banks and if there’s a deep decline in housing prices, which I don’t expect. The recent decline in oil prices is a concern, though, as many of those banks are holding energy development loans that help finance construction.
PB: You talk about the “next two months, next two quarters, and next two years” as a way for builders to look at a rebound for housing and the economy. Can you elaborate?
RD: The next two months [through May] will be bad. Economic data will be terrible and show a very sharp recession. We expect single-family starts to be half what they were in January and February. But, there are about 540,000 single-family homes [and another 600,000 multifamily units] in the production pipeline, and 90% of the single-family market was deemed essential. The activity may be slower, and we won't see a lot of new homes started, but the industry is still sustaining jobs and paying fees and taxes.
PB: What about the next two quarters?
RD: I think that’s when we’ll start to see some real stabilization and gains in certainty so builders can start backlogs of homes sold or under contract. That assumes we get control of the virus and don't see new or significant breakouts during the winter, which is a risk. We need to see the public health crisis in a containment mode, if not a solutions mode, so we can get back to something that’s on track to a 100% economy.
PB: And the next two years?
RD: Getting back on trend [from late 2019 and early 2020] and a better understanding of the true housing supply deficit, changes in household formations—maybe more roommates per unit and multigenerational families—and impacts on housing design, such as more room for a home office or home gym, and density preferences away from urban areas. That will help single-family development in rural, exurban, and even inner suburbs, with the barriers of commute times and costs perhaps negated by more liberal work-from-home policies.
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- Read more of Rob Dietz’s insights in his NAHB Eye On Housing blog posts, including A Decade of Home Building: The Long Recovery of the 2010
- NAHB Economist Robert Dietz Talks ‘Growth Recession’ and Housing in 2020
- How the Coronavirus Is Affecting the Housing Industry
- Advice and Preliminary Policy From a Midsize Builder During the Pandemic