Published by FloridaRealtors.org | February 4, 2021
ORLANDO, Fla. – Homebuilding experienced “a surprise year of growth” in 2020 despite the pandemic, but new home construction this year will be constrained by supply-side factors like higher lumber costs, a shortage of lots and regulatory issues, according to Dr. Robert Dietz, chief economist and senior vice president for economics and policy for the National Association of Home Builders (NAHB).
Dietz was one of several real estate economic experts who spoke to 424 Realtors® and attendees during Florida Realtors’ virtual 2021 Florida Real Estate Trends summit on February 4.
He said, “We expect the COVID-19 crisis to continue through February 2021, with a 50% vaccination rate by the end of April and a 75% rate by the end of October – we anticipate accelerating economic growth later in 2021. The new-home construction industry will grow in 2021, but at a lower rate, especially as interest rates trend higher with the recovery, thanks to aggressive action by the Federal Reserve. Housing affordability will be key – we risk pricing households out of the market due to rising interest rates and higher construction costs.”
Supply-side issues continue to impact homebuilding and affordability, especially for millennials seeking entry-level homes in suburban areas to raise growing families. Dietz predicted older millennials now ready to buy their first home – and looking for single-family homes they can afford – will be a leading demographic for residential real estate this year and in the years to come.
“The limiting factor for builders has been the roller-coaster ride for lumber prices,” he said. “In talking to builders, rising lumber costs for a newly built home could be pushing prices up $15,000 or more. And, about 24% of the cost of a new home comes from the cost of regulatory requirements, during both the development and construction. We need to see what can be done in regulatory costs to keep down what we call ‘death by a thousand cuts’ in the new-home market.”
However, Dietz noted that Florida, in particular, showed strong growth in new construction last year, with 2020 building permits in the state up “an incredible 30% year-over-year.”
The NAHB chief economist said he tracked data to look at the often-cited “shift to the suburbs” for housing in the latter part of 2020 due to COVID-19. He found that large metro areas with high density in the urban core still experienced a year-over-year growth rate of about 5.7% in 3Q 2020, but the lower-density, lower-cost suburbs out from the cities reported a growth rate of about 15%. Dietz also looked further out from Florida’s urban cores at communities known for second homes, investment homes or retirement. He said those areas reported a year-over-year growth rate of about 23.2% in 3Q 2020.
Turning to multifamily construction and commercial construction, Dietz said he expects an 11% decline in apartment construction growth in 2021, but multifamily construction will stabilize heading into 2022. Nonresidential building will feel more pain from a lack of commercial investment due to the pandemic and economic weakness.
Taking a look at Florida’s residential real estate market, Florida Realtors Chief Economist Dr. Brad O’Connor said the lack of for-sale inventory continues to constrain Florida’s housing market in 2021, and it appears new-home construction “isn’t going to bail us out of our home shortage on the market anytime soon.”
Wrapping up 2020, he noted that by the end of the year, the drop-off in Florida’s housing market from February into early May – due to COVID-19 – had reversed to the point where, overall, north of 300,000 sales of single-family homes were reported for 2020, a rise of almost 6% compared to 2019. Meanwhile, close to 120,000 sales of condos and townhouses were reported for 2020, for a 2.5% increase compared to 2019.
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