The Congressional Budget Office (CBO) says it will take several years for output to reach its full potential and for the number of employed workers to return to the pre-pandemic peak. The CBO expects GDP to return to pre-pandemic levels by the middle of 2021, thanks in part to the relief spending and stimulus money injected into the economy in 2020. The CBO noted that the $900 billion relief bill authorized in December 2020 would add about 1.5% to GDP in 2021 and 2022.
GDP will grow an upwardly revised 6.7% this year, according to the CBO, the Fed Board and Fannie Mae. Both forecasting bodies agree that GDP growth will slow to about 2.8% in 2022. Growth is expected to average about 2.6% annually through 2025.
The CBO estimates that unemployment will drop to 5.3% by the end of 2021 from 6.8% at the end of 2020. However, the number of people employed won’t return to pre-pandemic levels until 2024. The CBO also expects modestly higher inflation and interest rates over the coming years than anticipated in July.
Various new stimulus plans being considered would boost GDP and lower unemployment, with economists from the Brookings Institute estimating that the plan proposed by the Biden administration would boost GDP by 1% for the fourth quarter and push the jobless rate down to 3.2% by the end of the year. However, it does not appear likely the entire plan as proposed will be enacted.
Innovations in Construction Technology
In early 2020 construction tech was a hot market, attracting lots of venture capital and seeing a proliferation of startups. When the pandemic rattled the construction industry, tech providers refocused on practical solutions that they could implement immediately to keep projects going. Now that construction has come to grips with the new abnormal and some sectors are booming, tech firms are looking for ways to maintain the momentum created by necessity.
The first tech innovations that came courtesy of the pandemic were focused on safety, and included things like wearable worker-safety monitoring sensors that worked as a social distancing alarm, reconfigured software that identified bottlenecks on jobsites that caused workers to bunch up and procedures that allowed contractors to monitor and maintain safety protocols, like health tracking apps that met new screening requirements and virtual site inspections that use HoloLens and augmented reality.
Tech companies have developed plug-ins that improve audio quality on endless video meetings and conferences; poor sound is often cited as a reason for meeting fatigue and lack of collaboration and participation. Incubators have gone virtual, allowing companies to sift through ideas for keeping projects running smoothly, safely and profitably.
Technology has often lagged in construction, particularly among medium-sized and small contractors. Industry experts note that the pandemic has actually accelerated the adoption of technology, because technology has enabled companies to stay open and remain productive. In addition, projects have focused on those that seem to offer immediate benefits, which adds to tech adoption.
Lumber Prices Creating Big Problems
Lumber prices are up about 170% from year ago prices. The cost of the average framing package has more than doubled, adding an average $35,000 to the cost of framing. Reasons trace back to two issues: many mills in the US and Canada ceased production last March and April; then ensuing lockdowns and sick employees delayed re-opening. The huge spike in demand triggered by people moving, remodeling and buying homes at an unprecedented rate caught producers by surprise. Lumber prices and shortages are creating quite the crunch in the supply chain, delaying the start of projects. Lumber price spikes are adding so much to the cost of a new home some buyers are being pushed out of the market. In addition, many appraisers are not allowing for the increased costs, causing homes to fail to appraise for mortgages. Softwood lumber tariffs between the US and Canada also add to the problem.
National Home Price Forecast
CoreLogic predicts that national prices for homes will rise 4.1% this year, down from a 7.1% increase last year (as of October statistics). Realtor.com expects prices to increase 5.7% this year, with mortgage rates hovering around 3.2%. The National Association of Realtors (NAR) expects prices to increase 3% this year. Low inventories have led to rapidly climbing prices across the nation as more buyers compete for fewer homes. Industry experts expect the number of homes for sale will increase as vaccinations become more widespread, since many vulnerable homeowners sat on the sidelines last year, unwilling to risk the exposure that putting their home up for sale would bring. Older homeowners who are at greater risk of contracting CV19 and suffering serious complications or death chose to postpone selling until the worst of the danger was past. NAR said that many experts were taken aback by how much prices skyrocketed in 2020; they had expected prices to stay stable during the downturn, because credit requirements for mortgages are much higher now than they were prior to the great Recession.
Pandemic Creates Housing Boom
The largest number of new home sales were in large metros in the South and West that have had large population gains, according to the Associated General Contractors’ Data Digest. An analysis by CoreLogic of new-home closings from Q4 2019 to Q3 2020 found that the Dallas and Houston metros top the chart in the most recent 12-month period with more than 30,000 new-home sales. Phoenix and Atlanta each had more than 20,000 new-home closings. In all, 13 markets had at least 10,000 new-home sales in the past year, all in the South or the West. Smaller markets in the South and West had the largest annual percentage growth. Of the 10 fastest-growing new-home sales markets, five were metros in Texas, Florida, or Arizona, the three states with the largest population gains in 2020. Within metro areas, research by Freddie Mac found that 60% of the metropolitan statistical areas (MSAs) saw populations grow faster in the suburbs than in the cities between 2009 and 2019. Freddie Mac noted that population growth and mobility increases the demand for housing supply, and if the current supply cannot meet the growing demand, home values and prices go up.
Buy American Reinvented
In late January, President Joe Biden signed an executive order that aims to strengthen federal Buy American requirements and help US companies by getting tougher on waivers from domestic-preference requirements. It would also centralize waiver oversight into a new Made in America Office within the office of Management and Budget. In a provision that applies to construction materials, federal procurement officials are tasked with proposing a rule to change the way a product’s domestic content is calculated, including such factors as the jobs its production would support. The directive revokes Buy American directives issue by the Trump administration. Biden said one of the objectives of centralizing the office is to stop agencies from systemically waiving requirements, which he said has been going on.
Brick and Mortar Vs. Cyberspace
Retail stores have come full circle; at one time going shopping meant a trip to a physical store. Then as ecommerce of all varieties grew more popular, many retail pundits pronounced shopping malls were dead. But today retailers with a fleet of stores are using their physical stores to create their own vast network of fulfillment centers and challenge Amazon in the battle to own the last mile: the figurative distance from order to the customer’s home or final destination. Walmart, Lowe’s, Home Depot and Target are using their stores for services like in-store pickup and curbside delivery that provide ways for customers to get fast, contactless delivery that Amazon can’t match. Adobe reports that orders using BOPIS (buy online, pickup in store) grew 40% year over year during holiday 2020, with an average of one in four orders placed using BOPIS when it was offered. Target reported that they fulfilled 95% of holiday sales from stores and Walmart plans to beef up local fulfillment capabilities with new facilities around the US. As restrictions ease and people feel more comfortable in stores, physical stores offer a place where people can see, touch and compare products in person.
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