The construction industry has gone through a period of intense growth over the past few years. Much of the activity was centered on the single-family segment, with 2021 being an especially productive and profitable year. As expected, there has been a corresponding boom in the commercial builder’s risk package NY market.
At present, the growth shows no sign of stopping, much less slowing down. Forecasts for the future of residential construction are overwhelmingly positive, with many observers predicting a significant increase in the sale of residential properties. With numbers expected to reach the double digits, the industry may be looking at pre-recession growth levels. This, of course, means many more opportunities to sell builder’s risk insurance to contractors and homeowners.
The state of residential construction pre-recession
Before we go into the future of residential construction, it might be helpful to look at the housing market conditions in the years leading up to the pandemic.
Those who’ve been keeping track of construction trends for many years probably realize that the last time the market achieved current figures was in the mid-2000s. But, of course, things were a lot different back then, with more than $3 trillion in mortgages registered over a few years. This affected the housing market considerably, resulting in an expansion that is only now close to being repeated.
The same period also saw a sharp increase in speculative purchases. A significant percentage of homebuyers at the time were interested in homes as investment vehicles. Instead of first-time homebuyers, the market was dominated by people in the market for second and third homes.
Several factors were attributed to the housing market bubble during that period. The most significant of these were:
· The massive and widespread infusion of money into housing markets
· Relatively lax lending standards
· The passing of government policies that encouraged homeownership
But like all booms, it wasn’t destined to last. As we now know, the mid-2000s saw an increasing trend toward foreclosures. It all came crashing down around 2008 when the supply of available houses far exceeded the demand.
Residential construction over the past decade
The past decade has also seen many significant developments in the residential construction sector. After a period of active growth, the single-family housing market declined, with a noticeable decrease in sales. From 2000 to 2010, the number of new houses was only 55% of the previous decade’s total.
Again, many factors could be attributed to the decline. Some of these were:
· Leftover inventory from before the Recession
· Tighter practices by many lending firms
· Inconsistent lumber and material prices
· Widespread employment losses in the construction industry
All these factors made it difficult for first-time homebuyers to enter the market.
Interestingly, the number of multifamily structures increased noticeably, mainly because of the steep rise in demand for apartments and the difficulty of obtaining housing loans.
What the future holds for residential construction
The resurgence in the residential construction market started at the end of 2019. After a short period of decline at the beginning of 2020 caused by the pandemic, the single-family housing market bounced back and registered at least a million new units monthly over the next few months.
Ironically, the pandemic may have had something to do with the upswing, at least in part. The necessity of working and studying from home could have driven the demand for more living space.
There were also fewer foreclosures registered during that period, as mortgage lenders eased back on the market. With fewer foreclosed properties available, the demand quickly overtook the supply. This development contrasted sharply with the situation during the Recession when there was a glut of single-family housing with few takers.
What caused such a significant shift in the market? Although it can be attributed to many factors, the most important seem to be the following:
· The increased financial capabilities of prospective homebuyers
· Increased underwriting discipline by many lenders
· Overall employment levels maintaining pre-pandemic figures
· The tendency of high-income households to limit spending, reduce debt, and add to their savings
All these factors seem to indicate the continued upswing of the housing market, which will likely increase home sales. Another factor that may affect the residential construction market is the increase of single-family home construction by as much as 11% in 2020. With an additional 7% increase expected in 2021, the future looks bright for this particular segment of the industry.
About Snyder Specialty
Snyder Specialty, LLC is a New York-based underwriting facility that provides a range of property and liability solutions for personal and commercial lines. Specializing in coastal properties and hard-to-place risks, Snyder Specialty expands your current capabilities with proven solutions for complex risks. Find out more about the company’s range of services by calling (718) 362-8039.
