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How the coronavirus is impacting homebuilders

With construction labor and materials already at record lows, what will the repercussions be after COVID-19?

Although there is debate on whether or not real estate may be considered an essential business in some states, construction is a hot topic, too.

As of mid-march, construction employment has dipped by 29,000, according to the National Association of Home Builders.

Based on responses from a survey completed by the Association of General Contractors of America, the novel coronavirus has triggered layoffs at more than a quarter of firms that responded.

Coinciding with that, residential construction employment decreased by 4,300 in March, NAHB said. This comes after there was an employment increase of 24,100 in February.

Residential construction employment rounded out at 3 million in March, with 844,000 as builders and 2.1 million as residential specialty trade contractors, according to NAHB.

NAHB Chief Economist, Rob Dietz, told HousingWire that reports from April and May will show much more unemployment in the construction industry, causing a domino effect on construction pace in general.

“We’ve seen pretty dramatic declines, according to some of our weekly surveys, a dramatic decline for buyer traffic for homebuilders,” Dietz said. “More than 90% of builders saying that they’re seeing some kind of impact on buyer traffic. So what was the normalized level of inventory that was needed it’s going to change, certainly over the second quarter.”

“If you think about things that really kind of drive homebuying demand, particularly new construction demand, things like wealth of households which is connected to the stock market, we’ve seen some stabilization there,” Dietz continued. “And then, of course, the unemployment rate.”

In March, the unemployment rate in construction rose to 5.3% on a seasonally adjusted basis, after reaching 4% in February. In the last 10 years, NAHB says that the unemployment rate for construction has trended downwards, remaining low.

Delays and supply challenges

In all but five states, homebuilding has been deemed an essential service. However, Dietz said there is a lack of efficiency because of social distancing guidelines.

“We’re seeing a rising share of builders citing building material shortages, items like lighting fixtures, plumbing fixtures and kitchen cabinets,” Dietz said. “There are also issues in terms of getting permit approval and getting engineering inspections to move a unit from the construction pipeline.”

While stay-at-home rules and essential businesses vary by state, the slow-down of construction will be impacting what’s already a lack of housing inventory.

In a poll conducted by the Associated General Contractors of America last week, 53% said that a project owner asked for said project to be delayed for the following 30 days, while 7% were canceled and 45% weren’t asked to do so. It’s worth noting that President Donald Trump is enforcing social distancing guidelines through the end of April.

A sizable amount said they experienced significant project delays, with 35% claiming they’ve had shortage of materials or equipment, which includes personal protective equipment or parts.

Around 50% or more saw heightened safety requirements, with a whopping 93% saying they have integrated social distancing into their operations, followed by another 81% saying there is an increased number of handwashing and/or hand sanitizer stations at their workplace.

Of the 300 who answered, 83% said they donated masks to medical professionals and first responders.

How will this impact already low housing inventory?

Pre-coronavirus, the U.S. saw its lowest available housing inventory since 2013. In January, the active listings of homes for sale fell 11.4% year over year, marking the biggest drop since March 2013 and the sixth consecutive month of declines.

Housing starts then declined in February, and homebuilder confidence slid for the third consecutive month in March.

“The second quarter is going to be shutting down the economy and the third quarter is likely going to be weak as well, due to lingering financial impacts,” Dietz said. “We’re probably going to have to wait till the fourth quarter to really see some subsequent recovery.”

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