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March 23, 2020

US homebuilders to face a sharp slowdown in new projects

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As the US appears to gradually lock down its entire economy to slow the spread of Covid-19 – the disease that is currently sweeping the world – homebuilders across the US are expected to face a sharp slowdown in new construction projects in the coming months.

The National Association of Home Builders (NAHB) reported on March 17, that its survey of builders’ confidence remained solid in March – falling from 74 in February to 72, registering only a slight decline.

However, the group said that over half of the builder responses were collected before March 4th so the rising economic effects stemming from the coronavirus and the recent stock market sell-offs will be reflected more in next month’s report and it expects an ‘incredible disruptive’ second quarter as businesses close and lay off workers.

FactSet, a financial data and software company said that the S&P Homebuilders Select Industry index fell 41% this year, surpassing the 25% decline in the S&P 500 over the period.

The coming days and weeks will be crucial in determining the scale of the slowdown although some economists surveyed by the National Association of Realtors are already anticipating that home sales could decline by as much as 35% in the coming months.

According to the US Department of Labor, jobless claims for unemployment benefits in the US climbed to 281,000 for the week ending March 14, up from 211,000 in the previous week as businesses throughout the US, especially in industries such as leisure and hospitality, were forced to shut down and cut jobs amid the coronavirus outbreak.

The labour department also said that claims could reach more than two million by March 26, the largest weekly increase in jobless claims and the highest level on record. New York’s state labour department website, for instance, is averaging over 250,000 logins per day, a 400% increase over the normal average.

The US residential construction market, which was already struggling before the Covid-19 outbreak due to rising building costs, shortages of skilled labour, and expensive land, but was still showing signs of recovering especially during September 2019 and January 2020, is now facing additional challenges as the economy is likely to enter a recession in the second quarter, more people are laid off, and buyers and sellers reconsider their plans.

Supply-chain disruptions related to imports from China and other countries and difficulties in obtaining government permits or inspections are other major issues impacting on the market. Almost 30% of all US building product imports come from China as materials are generally less expensive.

Even though factories in China are gradually returning to work, an increasing number of them are expected to experience shortages of component and materials caused by global supply-chain disruptions for the months to come.

According to the American Chamber of Commerce in South China, all 237 foreign and Chinese companies it surveyed between 9 and 14 March, were still suffering disruptions to their businesses while a third of them were facing shortages of components and materials. These figures indicate that while China has turned the corner on the coronavirus outbreak, their factories will continue to struggle for now, and cause disruptions for global supply chains.

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