It should be no surprise that most areas of the U.S. economy have been affected in some way by the outbreak of COVID-19. The new construction market in particular has seen some significant ups and downs this year as a result of the pandemic. Some changes have been a shock to the system and others have come in the form of much-needed updates. In this article, we will talk about some of the hits to this industry and the almost immediate rebound new construction builders are seeing right now. Before we get ahead of ourselves, let’s revisit early March 2020 as businesses nationwide braced for the catastrophic landfall of COVID-19.
Back at the end of March 2020, when the threat of a lockdown was eminent, most businesses braced for the worst. Builders, like many other industries, prepared by reducing supply, furloughing employees, and operating off of reserve funds. New home builders were hit hard as a result of the 2008 market shift, and they learned from that experience to always be prepared for a downturn. It took more than 10 years for the industry to recover from the last housing crisis, but the new home market has recovered in less than 10 weeks. New home builders are certainly thankful and perhaps view this spring as a refresher course on what to do when the next shift inevitably hits.
In a sense, COVID-19 has also caused interest rates to drop tremendously. The Fed has continued to reduce the already low rates in an effort to stimulate the economy. Buyers are now taking advantage of record-low interest rates. The U.S. housing market was extremely strong prior to COVID-19, and had the pandemic never happened we should have seen rates increase significantly this year. The lower interest rates have definitely helped keep the new construction housing market booming. Buyer confidence is higher than at the beginning of this year.
Strict financing guidelines
Money might be cheap, but not everyone can buy it. One of the saddest aspects of COVID-19 is unemployment rates here in the U.S. So many people are out of work and have no way to pay their bills. In anticipation of this, the federal government is now requiring loan services to grant forbearances to individuals no matter what. In return, banks have gotten pretty picky about who they lend money to. Credit score minimums have jumped as much as 100 points for some loan types, appraisals have gotten more stringent, and lenders are sending loan packages back to underwriting sometimes even on the day of closing. The new construction market has been impacted greatly by the COVID-19 pandemic. Many of the safe business practices that are in place today will certainly become the standard operating procedure post-COVID, and many home buyers who were on the fence have now secured a slice of the American Dream thanks to low-interest rates.