US Home Price Growth to Slow
Post-CV19 home price growth is expected to be about half what was projected before the virus. Veros Real Estate Solutions expects a 1.9% average appreciation rate in the 100 largest housing markets compared to projections of a 3.9% bump made in early March. The markets with the strongest forecasts are all in the western half of the US, and include Boise, Idaho, Spokane, Washington, Idaho Falls, Idaho and Sierra Vista, Arizona. Veros expects home prices to fall in Chicago, Baton Rouge and Bridgeport, Connecticut. Veros expects a significant rebound when the pandemic subsides.
PPP and Construction
Out of 20 sectors approved for the first Payroll Protection Program (PPP) forgivable loans, construction firms received the largest amount ($44.9 billion), closely followed by professional, scientific and technical services ($43.3 billion). There were more than 700,000 construction establishments with 500 or fewer employees (the size limit for PPP loans) in 2017, according to the Census Bureau, which according to Associated General Contractors (AGC) means that about one-fourth of eligible firms received loans. AGC’s survey in early April found that 74% of 830 respondents had either applied (64%) or intended to apply (10%) for PPP loans.
Project Cancellations and Delays
More contractors are reporting cancellations of upcoming projects and shortages of equipment or materials, forcing nearly 40% of firms to lay off employees, according to an online survey released by AGC. Seasonally adjusted construction employment increased from March 2019 to March 2020 in 41 states, declined in seven states and the District of Columbia, and held steady in Delaware and Alaska.
Construction Stand Down for Safety
On April 16 thousands of construction sites across the country stopped work for ten minutes in order to educate workers on how to keep themselves safe during the CV19 crisis, and help flatten the curve. Residential and multifamily construction was declared an essential business by DHS, although individual states have the authority to impose their own restrictions. NAHB and construction industry partners developed a comprehensive preparedness plan with guidelines such as maintaining a distance of no less than six feet with others at all times, cleaning and sanitizing frequently used tools, equipment, and frequently touched surfaces on a regular basis and ensuring the proper sanitation of common surfaces and equipment.
Impact on Construction Starts
While GDP growth will plummet in the second quarter, the recession will be short lived, according to Dodge Data & Analytics most recent forecast, "The Potential Impact of Coronavirus (COVID-19) on Construction Starts", released in early April. Dodge expects a 2.5% decrease in overall starts in the first quarter, followed by a much sharper decline of 18.3% in the second quarter of the year. Dodge believes the economy will begin to very slowly return to normal and then get a boost in the second half of the year. They are basing their assumptions on infections peaking in May, beginning to slow down in June and then abating by July.
On the residential side, the Dodge forecast predicts a 13% drop in all housing in 2020, with a 3% increase in 2021. Single-family housing, already expected to experience a downturn due to the lack of affordability and entry level homes, will see a 10% drop. Dodge estimates that second quarter home sales could decline by 50% from the first quarter of the year. They expect the single-family market to begin the road back in 2021, recovering about 5%.
Construction Firms Make Face Shields
Both companies and college programs are turning their production facilities and digital fabrication labs into face shield manufacturing plants, according to a report in Engineering News Record (ENR). Local hospitals are looking for help, and companies large and small are stepping up to the plate. General Electric is using 3D printing to produce an adapter that can quickly convert a standard hardhat and shield into a face shield to protect the masks worn by health professionals. Printing the adapter only takes about 15 minutes. John Deere is working with the United Auto Workers and hopes to produce more than 200,000 face shields. Some are using 3D printers and laser cutters to make shields; Cornell’s College of Architecture turned their entire lab into a production facility.
Pandemic Accelerates Ecommerce
Amazon could see their share of the ecommerce marketplace jump from 40% prior to the pandemic to 50% or even more as Amazon becomes one of America’s most vital supply chains. In general, ecommerce made up about 16% of retail sales prior to CV19. Analysts estimate that the pandemic accelerated the natural growth of ecommerce by at least three or four years. Once traditional retail is more accessible, that percentage will drop, but ecommerce may still account for 18% to 19% of retail; analysts had estimated ecommerce would not reach that share until the end of 2021. Grocery delivery will drop back as well, but may account for 5% to 6%, the level that was estimated for two years from now.
Although 30 million Americans filed for unemployment between mid-March and the end of April, some companies are adding to staff as quickly as they can find qualified people. Amazon expects to hire a total of 175,000 workers to keep up with demand, most in fulfillment, delivery and sorting operations that require people to be on-site. Walmart announced in March they needed to hire 150,000 new workers. They filled all those openings in less than a month, about six weeks ahead of schedule, and in mid-April announced they will hire another 50,000 additional associates across distribution centers and stores, filling roles such as cashiers and personal shoppers. Walmart said those jobs are likely to be temporary. Several other grocery stores are also hiring, along with drug stores, home centers and delivery services. Lowe’s announced in late March they wanted to fill 30,000 permanent and temporary job openings at distribution centers and in stores.
Oil War Cease Fire
Saudi Arabia and Russia reached an agreement in late April that ended the oil price war. The agreement emerged from a virtual meeting that saw OPEC+ outline a deal to slash production by 10 million barrels a day, according to sources familiar with the proceedings. As part of the deal, Saudi Arabia will cut daily production by 4 million barrels, while Russia will lower its output by 2 million a day. Crude prices began to recover toward the end of the month as US stockpiles rose less than expected. Consumer demand is also expected to improve as some stay home orders expire or are modified and businesses begin to reopen.
Jeff Bezos outlined Amazon’s coronavirus response and plans for the future in his annual letter to shareholders, which was released in mid-April. He noted Amazon has attempted to prioritize high-demand, essential items for customers sheltering at home, including household staples, medical supplies and groceries. Amazon’s Whole Foods Market stores have remained open, but Amazon’s other physical retail formats that don’t sell essential goods have been closed. Amazon has also removed up-selling and promotions meant to drive impulse purchases from their website, canceled promotions for Mother’s Day and Father’s Day and indefinitely postponed Amazon’s famous Prime Day sale, typically held in July to commemorate Amazon’s anniversary. Prime Day has become a big sales day for many retailers.
Postal Service Under Fire
President Trump said he will not approve a $10 billion loan for The Postal Service that was included in the government’s $2 trillion rescue package unless the USPS raises prices to be more competitive. The President believes that the Post Office is losing money because they don’t charge companies such as Amazon and other internet sellers enough for delivering their packages and wants the USPS to quadruple their rates. Analysts say that sharply raising charges for big shippers like Amazon could backfire and cause those companies to turn to competitors such as UPS and FedEx.
What Lies Ahead?
There is general agreement that the CV19 pandemic will change the way we live and do business not just for today, but for the foreseeable future. Social distancing is here to stay, handshakes may become a thing of the past, and big gatherings of all kinds, from corporate meetings to concerts, sports and theater, will have to find ways to re-invent themselves until there is a proven vaccine, effective treatments or enough countries have developed herd immunity. People’s reluctance or inability to travel will have a ripple effect throughout both the US and global economy. Education at all levels will be impacted, with colleges facing big drops in enrollment. Small businesses are going bankrupt at a record rate, as are some struggling large retailers.
Many will adapt and survive; some will even prosper as the current crisis accelerates the inevitable and we invent new ways to move forward. Business in the virtual world will grow at an accelerated rate, while business in the physical world will change as physical retail adapts to social distancing, limited occupancy and fewer promotions that drive traffic and in-store sales. Many people have had to learn new ways to do things, from having a Zoom meeting to ordering groceries through InstaCart to going out to eat less and spending more time with your family. Some of these new ways of doing things may mainstream as people come to appreciate some of the unexpected advantages of being stuck at home.
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