The residential and commercial building industry is a dynamic economic engine that drives national, regional, and local economies forward. At the same time, the building and construction industry is an economic indicator of the state of the economy and its trajectory. There is no financial crystal ball that infallibly reveals the future.
With that being the case, it is incumbent upon business owners to keep an eye on key economic indicators, trusted economic industry forecasters, and the political landscape. The ability to discern with some measure of accuracy what the future holds enables the business owner or, in this case, the general contractor to anticipate and respond accordingly to economic and market changes. Effective scaling, whether up or down, is relevant to profitability.
Recently, CNBC reported that mortgage giant Fannie Mae significantly boosted its 2020
housing forecast. The article says, “Strong reads on the economy have researchers at mortgage giant Fannie Mae revising their 2020 housing forecast much higher. Fannie Mae’s Economic and Strategic Research Group predicts builders will expand production more than previously expected, due to a strong labor market and robust consumer spending. Low mortgage rates will also help. After increasing just over 1% annually this year, growth in single-family housing starts will accelerate to 10% during 2020 and top 1 million new homes in 2021, the group predicts. That would mark a post-recession high but is still far below the annual peak of about 1.7 million single-family starts in 2005 and the 1.2 million annual pace experienced in the late ’90s. Single-family housing starts have been improving steadily since May (of 2019), and building permits, an indicator of future construction, are also trending higher.”
The upshot of this recalibration of the forecast is that the economy is stronger than previously expected. Interest rates are low and will remain so possibly through 2020. Housing demand is up, and builders are responding with increased activity to meet these demands. Single-family housing starts have been improving steadily since May, and building permits, an indicator of future construction, are also trending higher.
The shortage of existing homes for sale has pushed more potential buyers into the new-build market. According to the Mortgage Bankers Association, mortgage applications for the purchase of a newly constructed home were up 27% annually in November. The National Association of Home Builders reports that homebuilder sentiment increased to the highest level in 20 years in December.
Also, the average rate on the 30-year fixed mortgage is slightly below 4%, a full percentage point lower than last year. Low rates are boosting already strong demographic demand drivers in the market. The “demographic demand” calls for some explanation. Millennials are showing themselves to be a key demographic demand driver in the housing market. While delaying major life decisions until their 30’s, they are
bypassing the traditional starter home and entering at the mid-range housing market. They could account for 50% of all mortgages by spring 2020, thus dominating the market. Almost 5 million millennials will turn 30, which is about the time many people buy their first home. The oldest of the Millennials will turn 39, typically when family dynamics necessitate a move to larger homes in the suburbs. This translates into pressure on mid-range housing. With a shortage of existing homes in this price range, a reasonable market solution is needed.
On the bright side, the shortage of existing homes for sale creates an opportunity for builders. Raymond James housing analyst Buck Horne wrote in an October note to investors, “We believe homebuilders are poised to enter 2020 with some of the strongest supply/demand fundamentals we’ve seen in the 10-year housing recovery to date…”
He continued, “Homebuyers responded convincingly to lower mortgage rates this summer, leading to a re-acceleration of home price appreciation across most markets.”
Chief industry analysts at Fannie Mae noticed the emergence of powerful market factors for the upside of building and construction in 2020. In response, they adjusted their outlook. Homebuyers noticed the lower mortgage interest rates this summer, leading to a re-acceleration of home price appreciation across most markets. General contractors in Tampa, Miami, Tallahassee, and Jacksonville must do the same.
To be ready for the opportunities in 2020, general contractors must be prepared. With over 50 years of experience in Florida helping contractors of all types, Contractors Reporting Services guides contractors through the nuances and typical challenges associated with licensing, incorporation, renewals, annual reporting, credit reports, bonds, and more. Contractors Reporting Services comes alongside the contractor and handles all licensing needs.
About Contractors Reporting Services
Contractors Reporting Services has been taking care of the paperwork and licensing/approval processes in the construction industry for more than fifty years. Whether the client needs a general contractor license or wants to know how to become a contractor, Contractors Reporting Services can help.
For more information, contact Contractors Reporting Services by phone at
(813) 932-5244, or visit the website at https://activatemylicense.com.