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Despite disparity and downturn, building business booms

Despite disparity and downturn, building business booms
Images by Tony Papousek

The housing market in Nebraska and across the United States remains strong through the COVID-19 pandemic despite a corresponding recession causing income disparity.

The sustained strength of real estate is largely due to record-low mortgage rates. Although mortgage rates saw a small uptick following recent news of possible COVID-19 vaccines, those rates are still nearly a percentage point lower than they were last year at 2.84%, according to data from Freddie Mac’s Economic and Research group.

Freddie Mac forecasts that mortgage rates will remain flat at around 3% at least until the end of 2021, citing the Federal Reserve signaling they plan to keep rates low until inflation picks up. There are no signs of inflation in the immediate future, but there are still troubling signs in the housing market.

Historically low mortgage rates increased the demand for single-family homes, but construction delays caused low supply. Manufacturing shutdowns and setbacks caused by the pandemic sharply increased the cost of manufacturing supplies.

Additionally, people are feeling uncertain and anxious about selling their homes in these turbulent times, resulting in a further decrease in the supply for prospective home buyers.

 

Images by Tony Papousek

 

Anxiety and Uncertainty Among Potential Home Sellers

Pandemic-driven economic fear is causing potential sellers to feel uneasy about selling their homes, despite a competitive buyers’ market. Record low mortgage rates coupled with an increase in construction material cost is causing a low supply of new homes.

In a survey conducted by Zillow Research, only 1% of the more than 1,000 homeowners surveyed said their homes were currently listed for sale.

Of the homeowners who weren’t trying to sell their homes:

  • 26% were concerned they won’t be able to find or afford a new home.
  • 21% said life is too uncertain for them or their household.
  • 21% percent anticipated a more favorable home sale price if they waited.
  • 19% percent have an uncertain or precarious financial situation.
  • 15% percent are concerned about their health and/or their household’s health during the COVID-19 pandemic.

Steve Schultz, who holds the Baright Professorship of Real Estate and Land Use Economics at the University of Nebraska at Omaha, said he hasn’t seen any evidence of investment purchases in the last six months and has doubts about the likelihood of increased inventory in the coming year due to older people dying (due to COVID-19).

“Even if this does occur,” Schultz said, “it would be off-set by other older homeowners not selling because of the anxiety … and in particular, older people preferring to stay in their own home rather than moving into a retirement home or even a retirement community in the middle of the COVID crisis.”

 

Images by Tony Papousek

 

Construction Costs and Labor

The pandemic has caused significant rises in the unemployment rate in the United States and Nebraska. The national unemployment rate hit an all-time high of 14.7% in April, reported the U.S Bureau of Labor Statistics. Nebraska spiked at 8.7% the same month.

Construction workers were affected, too. According to the U.S. Bureau of Labor Statistics, the construction labor force dropped 4.9% from April to September of 2020. Nebraska’s overall labor force changed 2.45% over that same time period.

The Associated General Contractors said that in April, about 1 million construction workers lost their jobs in the U.S. with that number being reduced to about 600,000 in May. Despite the construction workforce rebound, other factors are causing housing construction costs to rise.

“Another part of the equation is that, although builders are building new homes, material costs have been significantly affected by the pandemic, which has interrupted production and supply chains, so new construction costs have gone up significantly,” said Greg Lemon, director for Nebraska Real Estate Commission.

The Associated Builders and Contractors (ABC), a national construction industry trade association reported that raw material costs rose by 2.2% in June. Some of these cost increases stem from the global supply chain caused by coronavirus-related disruptions in manufacturing and importing of goods. Data from the U.S. Bureau of Labor Statistics show the trend continuing, with prices for construction-related materials and components sharply spiking in September.

Disruptions in the delivery of raw and manufactured construction materials were affected by temporary shutdowns due to COVID-19. But as manufacturing started back up, materials supplied by U.S. manufacturers were quicker to pick up where they left off. Overseas manufacturers, like those in China, were slower to get back to pre-COVID production levels and supply goods to meet demand.

Construction companies and builders in the U.S. are concerned about getting entangled in contracts that charge them for delays in completion of projects as the build-up of material shortages, the pandemic and other factors that are out of their control.

The ABC trade association said this could potentially reduce the number of willing bidders, decrease competition and increase costs passed on to the homeowner.

According to the U.S. Census Bureau, in the last quarter of 2019 (October-December), 29,000 new homes were under construction in the Midwest. That number dropped off during the winter months but rose to 42,000 new homes under construction during the third quarter (July-September) which is 9,000 to 13,000 more homes being built than the same third quarter of the previous three years.

The Census Bureau’s report on building permits issued for new privately owned homes in Nebraska for September totaled 866. In April, as the pandemic began to take hold, the total number of building permits issued was 829. The number of building permits issued is down almost 4,000 from this time last year.

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