Construction of new single-family homes is expected to increase again in 2021 and finally surpass the threshold of 1 million units, but there are concerns about pricing and other headwinds.
Last year, the industry came close to the million-home mark with 988,000 single-family housing starts, according to the National Association of Home Builders.
In 2021, the trade group is calling for a 5 percent increase in single-family housing to 1.03 million units, followed by a 3 percent increase to 1.06 million units in 2022.
"In 2020, we ended the best year that the homebuilding industry had since the end of the Great Recession," NAHB economist Robert Dietz said Feb. 9 during a panel discussion as part of the association's virtual International Builders' Show (IBS X). "We didn't quite get to 1 million single family starts, but we ended 11 percent higher."
Despite the pandemic, the housing industry overperformed in 2020 due to historically low interest rates and a shift in preferences to the single-family residences as opposed to multifamily apartments and condos.
"We expect ongoing growth but at lower growth rate," Dietz said. "We're looking at 5 percent growth rate. 2021 is going to be the first year we get above 1 million single-family starts."
However, the cost of those houses is going up. The top issue facing builders is soaring lumber prices, which Dietz said skyrocketed from about $350 per thousand board feet in April 2020 to more than $950 per thousand board feet by September 2020.
"There was a reprieve, but prices went up again as forecasts for 2021 came out suggesting we'd see a fair amount of [housing] growth," Dietz said. "Pricing is now near the peak of September and it's easily adding $16,000 to the cost of a typical newly built single-family home."
The other two major challenges for builders are delivery delays for building materials and appliances and the ongoing skilled labor shortage, which both have been hampered by the pandemic.
For buyers, the pandemic increased demand for home offices and spaces for children to attend school virtually.
Also, more new houses will be built in the suburbs and rural areas now that employers are more open to people working from home. The benefits of lower density and lower costs put rural construction ahead of the suburbs in 2020, according to NAHB.
Dietz also forecast multifamily construction to decrease 11 percent from 392,000 units in 2020 to 349,000 units in 2021 followed by a 5 percent increase to 365,000 in 2022.
The residential remodeling market is expected to grow 4 percent in 2021 and another 2 percent in 2022.