After starting 2020 at a strong pace, residential construction was thrown into decline and uncertainty in the spring as COVID-19-related shutdowns gripped the industry and the rest of the US economy. The housing industry decline, however, turned out to be short-lived; few industries bounced back as quickly or as powerfully. Now, with the benefit of just-released year-end figures, we will look at how the year turned out and where we go from here.
US Housing Starts totaled 1.380 million during 2020, up 7.0% from 2019. This occurred despite enormous month-over-month declines in April and May, with Starts down 27.2% and 19.5% from the same months in 2019, respectively. An incredibly swift rebound in Starts helped overcome the pothole in what should have been the start of the seasonal upswing in market activity.
A perfect storm
Housing benefited from a number of trends in 2020. First, the incredibly low interest rates proved too enticing for homebuyers to pass up, as New Home Sales thrived following their spring dip. Additionally, this voracious appetite for single-family homes was too much for developers to keep up with as they brought new units to the market. This dynamic, however, resulted in lower inventories of existing home stock throughout the year, which in turn gave developers the confidence to keep building.
Finally, it appears that COVID-19's disruption to traditional workplace practices delivered another jolt to the market. Millions of workers around the US found themselves with a new flexibility. Now able to work remotely, they were free to consider suburban and rural markets that were previously out of the question due to commuting concerns.
The aforementioned trends did not support Multi-Family Housing Starts in the same way they did Single-Family Housing Starts. Finishing the year up 11.6%, Single-Family Starts drove most of the total market growth in 2020, the best calendar year for growth since 2013. Multi-Family Starts, on the other hand, finished the year down 3.3%, and fourth-quarter Starts in particular came in 23.1% below the final quarter of 2019. This indicates further decline on an annualized basis heading into 2021.
The COVID-related geographic displacement trend seems to be particularly problematic for urban living, which often features multi-family settings. The appeal of living in the city is at least temporarily damaged in a COVID-19 world with restricted nightlife, dining, and entertainment options; pre-pandemic, such amenities had made cities appealing for so many.
Looking ahead, we expect similar trend dynamics for both markets in 2021. Our forecasts through 2023 are available in our ITR Trends Report™. The momentum in the single-family market is still building; with inventory levels continuing to decline and mortgage rates remaining low, we expect another very good year ahead. On the multi-family side, we expect a mildly negative 2021, as the COVID-related issues plaguing that segment will likely persist through early this year. However, we do expect this market to move into recovery by mid-2021 and start improving in the second half of the year.
If you serve the total residential market, prepare for growth in 2021, but prepare and implement strategies to target ongoing growth in the single-family segment while diversifying away from weaker market conditions in the multi-family segment this year.