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Slowing but Continuing Growth in New Homes Market Forecast for 2021

Again, the pandemic.

Meanwhile, the NAHB prognosticator says, “Wild cards in the forecast on the downside also include large changes in interest rates (although he expects them to remain near their historic lows at below 4%) and significantly tighter regulatory policy.”

That would add to possible weaknesses in construction due to rising costs for building materials and land, as well as indirect costs of longer delivery times for those materials. “We also see higher regulatory risks for government policies in the areas of labor and land development,” Dietz says.

Location, location, location

Data scientist Francesca Ortegren with the Clever real estate listing service says she, too, expects new construction to continue rising in 2021, and geography has a lot to do with it.

Ortegren says: “We’re likely to see more construction in areas that continue to have quick sales, limited inventory, and high prices. According to our Buyer Demand Report, midsized metro areas seemed to have the largest increase in demand (as it related to supply) throughout the beginning half of the pandemic.”

She pointed to areas such as Harrisburg, Pennsylvania.; Albany, New York; Rochester, New York; and New Orleans as examples of significant increases in demand compared to inventory. “We can expect prospective homeowners in those areas to turn to building to avoid the seller’s market,” Ortegren says.

As for the pandemic, the Clever data diver says: “I anticipate demand will remain high even after lockdowns lift more permanently. Instead, we might see changes in inventory such that more homes are listed for sale as people regain jobs and the economy grows.” People whose personal economies don’t recover and are forced to sell after forbearances expire also could add to inventory.

But don’t count on a buyer’s market emerging, since inventory was low before the pandemic and the ensuing buying surge. A large jump in construction would be needed to even up those market forces, much less swing the market to the other side of the supply-demand pendulum.

The Millionacres bottom line

A shortage of existing housing, low interest rates, and a consumer shift to prefer more space in and around their homes should all combine to help drive demand for new homes to be built and bought in the year ahead.

That probably won’t happen at the breakneck space seen in the latter half of 2020 as the housing market, like the stock market, sprung back from their swoons as COVID-19 first forced much of the economy, and everything else in America, to shut down.

Growth will be more modest as vaccines are administered by the hundreds of millions, allowing life to return to some kind of normal, because again, it all depends on the coronavirus.

As Zarenski says, “Any significant change in the trajectory of pandemic response could dramatically change the forecast for new work.” And everything else.

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