According to estimates from the Housing and Urban Development and Commerce Departments, single-family starts began an expected, virus-related decline in March. Construction activity is expected to fall as virus mitigation efforts result in increased unemployment, economic uncertainty and lost business activity.
Despite a strong start for 2020 in January and February, the April NAHB/Wells Fargo HMI point to additional construction declines ahead. In particular, April and May will likely show the lowest construction rates, on a seasonally adjusted basis, for 2020.
Single-family starts declined 17.5% in March to a seasonally adjusted annual pace of 856,000. Multifamily starts for units in 5+ unit properties declined 32% to a 347,000 annualized rate after a strong yet unsustainable start for 2020 for apartment construction.
As of March 2020, there were 534,000 single-family homes under construction. This is flat from a year ago. There are currently 684,000 apartments under construction, up almost 15% from a year ago and near a post-Great Recession high. The cumulative economic impact of the 2019 rebound in home construction is seen in the graph below. As starts slow, this count will decline in the quarters ahead.
Furthermore, construction can continue in a majority of states, as home building is deemed an essential business activity. We estimate that approximately 90% of single-family units under construction are located in ‘essential’ states and 80% of apartment units are located in such states.
Construction activity will face significant headwinds in the months ahead given the economic impact of mitigation strategies that are placing large segments of the U.S. economy on pause.