2021 is expected to be a remarkable year for single-family construction. Experts are anticipating a double digit increase in residential sales, similar to the levels that existed prior to the Recession. This means a lot of builders risk sales opportunities for insurance agents with homeowners and contractors.
Let’s learn about the 2021 home construction outlook by diving into the past few decades and identifying what’s different now that will help the U.S. move forward.
The Housing Market Prior to the Great Recession
The last time we saw numbers like this occurred in the mid-2000s. In fact, there was about $3 trillion worth of new mortgages in that period, significantly expanding the housing market. There was also a lot of speculative purchasing. Most of the people buying were looking for second and third homes as investment properties – not residences.
What caused the bubble in the housing market during that time?
- Massive inflow of dollars into housing markets
- Loose lending standards
- Government policies promoting homeownership
Everything came to head in 2008 when there was a huge rise in foreclosures, creating a greater supply of houses than there was demand for them. This led to the crash in the housing market.
Single-Family Housing in the Last Decade
Following that was a rather unremarkable decade for single-family housing. The amount of single-family new construction residence starts in the 2010s was about 55 percent of what it had been the decade before. Homebuilders declined due to an inventory hangover from their starts preceding the Recession. Tighter lending practices, inconsistent pricing for lumber and construction materials, and major job loss in the construction sector made building for entry-level single-family housing difficult.
Instead, there was an increase in multifamily structures due to the concept of the “missing middle” and the need for apartment housing, as home loans were more difficult to get. This was driven by the five Ls:
- Lots / land
- Lumber / materials
- Lending for builders
- Laws and regulations
Home Construction Outlook Moving Forward
Single-family housing starts began building momentum again at the end of 2019. After a brief drop in starts in early 2020 due to the COVID-19 pandemic, there have been six consecutive months with at least one million new single-family housing starts.
Did the pandemic aid this rise in the single-family housing market? Maybe. The shift to remote working and learning created a big push for more space. Mortgage forbearance has lessened the number of foreclosures, decreasing the number of homes going on the market. This has created a supply and demand dynamic opposite of the one that occurred during the 2009 Recession: there is more demand for houses than there are houses available.
Why is it different this time? Here are four factors influencing the U.S. residential construction outlook:
- Homebuyers are in a stronger financial position.
- Lenders have maintained underwriting discipline.
- Overall employment remains above pre-pandemic levels.
- Higher income households have limited discretionary spending and are concentrated on reducing debt, home improvements or bolstering savings.
Because of this, experts are predicting another expansion in the housing market, with a surge in home sales. Additionally, single-family housing starts rose 11 percent in 2020 and are projected to rise an additional seven percent in 2021. Single-family home construction is playing a major role in leading the economic recovery in the U.S. Make sure that you are a part of it! Discover how to find leads and sell builders risk, then explore our opportunities to apply online and get a Zurich builders risk quote for new home construction or remodeling in minutes.
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