Real Estate

Homebuilders: An essential business that “backstops the economy”

Essential workers keep housing market rolling

As the housing industry adapts to navigate COVID-19, there is one sector that is mostly carrying on with business as usual. Even as states are locking down and ordering residents to stay at home, homebuilders are continuing to work. That’s because every state except Pennsylvania and Washington has declared homebuilders essential workers, according to the National Association of Home Builders CEO Jerry Howard. 

According to Howard, homebuilders are going to propel the economy forward after the coronavirus recession. “If you keep our demands moving forward, you will keep other sectors engaged, and hopefully help get them through this downtime,” Howard explained. 

But that isn’t the only reason why homebuilders need to keep working.

Homebuilders are essential workers

Unlike other members of the housing industry that have flexed their remote capabilities in the past weeks, builders, for obvious reasons, don’t have this opportunity and remain working on site.

“Because of the nature of our business, it’s very easy to comply with the safety standards,” Howard said. “It’s easy to have fewer than 10 people on a job site. It’s easy to keep those people who are onsite six-feet apart.”

“You’re outside, so you’re not breathing the same air,” he said. “Builders right now really want to stay engaged, both to keep their families taken care of, but also because we recognize the role that we have to play in recovering from this.”

Justin Webb, Dallas Builders Association president and president of Altura Homes explained further. “Shelter is one of the basic needs, and if we are already supposed to be sheltering in place and sheltering at home, we have to have a home to live in,” Webb said. “There are more people than there are homes right now, and we’ve got to provide housing and shelter, a basic need, and I think that’s why most governments are considering us an essential service.”

Howard agreed, explaining that NAHB continues to lobby for homebuilders as an essential business in states that have yet to make their own declarations. “You’re talking about basic shelter,” he said. “And you’re talking about the notion that in rental units, you have to have the management and the maintenance up and running. You have to have people there to keep the housing decent. In single-family units, if you have houses that are under contract and people are waiting to move in, you’ve got to make sure that these people have homes.”     

Pulling the economy out of a crisis

Homebuilders are uniquely positioned to help jumpstart the economy when everyone goes back to work. “The construction sector can help provide a backstop for other segments of the economy,” Howard said. “The construction sector is the customer of the energy sector. The more we’re working, the more we’re going to keep the energy sector working.”

“Likewise, we are huge customers of the manufacturing sector – the more we’re working, the more manufacturing we’re going to need,” he added. “I think it’s wise on the part of governments to recognize our importance at this time and keep us moving forward.”

The homebuilding industry not only helps spur other industries, but it also helps a sector of Americans that earn hourly wages – not salary. “So many of the people that are employed in the homebuilding sector are hourly wage earners that live paycheck to paycheck,” Howard said. “And if we can keep those people employed, then you’re going to stop a lot of, or at least reduce, the need of the government to help subsidize them.”

Demand surges forward

Despite the decrease in traffic and demand on the real estate front, builders are still going strong. Lennar, one of the largest homebuilders in the U.S., reported an increase in new orders for the first quarter ending in February. While this was before the coronavirus was widespread, the homebuilder also reported that orders were up 16% in the first two weeks of March. 

Other builders are experiencing similar numbers. “We’ve seen demand actually increase and I talked to about 14 other builders and developers today – we had a phone call for a virtual executive meeting for the Dallas Builders Association,” Webb explained. “It was almost universal that demand has actually increased.”

Webb showed that sales at Altura Homes were up about 31% through 2020 year-to-date compared to the same time last year. “The other thing I’ve heard is that fewer people are putting their houses on the market on the resale side,” Webb said. “There’s sort of a supply-side problem, where there are not enough houses for people to buy right now.”

In fact, Webb explained that with more people staying in, this has actually streamlined the process, as only serious buyers are touring homes right now. “The traffic is down, but the quality of the traffic is way up,” he said. “If someone is willing to go look at a house, they’re pretty serious about buying a house.”

The true test of demand will be determined by how long the pandemic lasts. “The question is really how long is this dramatic catastrophe going to suppress the demand,” Howard said. “And we don’t know the answer to that. If it’s what our economists are predicting, and construction remains open right now as it appears to be, then I think we’ll be able to meet the demand. We’ll be able to really help get the economy up and running again.”

NAHB economists predict demand will be back up and at its normal levels once again by the third or fourth quarter this year. “We are assuming an approximate eight-week mitigation period, followed by a decline in the growth rate of virus cases,” NAHB Chief Economist Robert Dietz wrote in his weekly forecast. “This will enable portions of the U.S. economy to return to at least partial activity, slowing job losses and bringing some workers back to work. We estimate that approximately 40% of GDP is on pause or partial pause (keep in mind that about one-third of the economy is housing and healthcare alone), however, this share has been growing as companies pause operations.”

Navigating challenges

However, homebuilding isn’t immune to some of the challenges in today’s fluid environment. For example, getting inspections done could become difficult in some areas. For new builds, inspections must be performed all throughout the project in order to move on to the next building phase. 

“With county governments closing, the notion of getting your inspections done, the notion of even getting the real estate land closing done becomes very challenging,” Howard said. “We applaud the federal government, and we applaud the financial institutions for modifying their practices to allow for things like virtual inspections and electronic signatures rather than requiring what they call a web signature, things like that are helping us move forward.”

Land Gorilla is just one example of a company quickly adapting to the current challenges in the market, launching a remote inspections product to fit the changing way consumers and businesses now need to interact. These types of products will help streamline the process as builders continue to push new homes to the market.

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