Homebuilders are reporting that new home construction can be described as stable at the moment. But when it comes to commercial projects, it could take a year to get a complete picture.
Written by Frank Lopez
While the coronavirus has helped build anxiety over public health and the economy, it has also dampened the construction and building industry.
The construction industry did catch some luck in being deemed “essential”, but the pandemic did toss a wrench into the works. According to the U.S. Bureau of Labor Statistics, the April unemployment rate of 16.6% for the industry was more than triple what it was at the beginning of 2020.
When it comes to jobs, the pain isn’t so pronounced in the Central Valley, according to data from the state Employment Development Department. There were 18,300 people employed in construction in Fresno County for May — 600 less than in May 2019. The rates were unchanged in Kings and Madera counties, and up 200 in Tulare County.
There was a marked drop off when it comes to actual construction projects, though, as revealed by construction permit data.
A look back at reports from mid-June 2015 to around mid-June 2020 from the Construction Monitor, an online resource that tracks building permit information nationally, shows a drop in permitting since the start of the pandemic.
The June 10 report shows there were 3,233 residential home building permits issued in Fresno, Kings, Madera and Tulare counties at a value of $562.5 million, a significant drop from last year’s report for the same period. The June 12, 2019 showed 3,856 residential permits issued with a total combined value of $674 million.
The June 10, 2015 report shows 7,409 residential permits issued with a total value at $512.5 million. Reports show that permitting increased in 2016 in the same period, as well as in 2017 with 7,609 residential permits issued with a total value of $457.6 million.
Home sweet home market
Mike Prandini, president and CEO of the Building Industry Association for Fresno/Madera counties, said that after the initial concern of whether building would be considered “essential” or not, the next worries were over permitting and being able to show and sell homes.
Prandini said there was an uptick in demand for homes during the pandemic, but with uncertainty in the economy and job markets, he said it’s been difficult to sell the homes already permitted.
“The buyers are in short supply,” Prandini said. “That’s indicative in the drop of number of permits. We will see how it looks in July and if construction comes back, but there are economists who believe that it might bounce quickly, but builders are not going to get too far out in front of their sales.”
Things were looking good in February Prandini said, and builders were still allowed to continue building, selling, and taking orders for new homes, but after the first lockdowns in mid-March, it all started to slow down.
Early in June, the National Bureau of Economic Research reported that in February, the U.S. economic expansion ended after 128 months, which was the longest ramp up in U.S. history. The U.S. entered a recession that month, prompting the industry to keep a close eye on the market.
“The builders are watching activity at their sales office to determine what the product is that people are interested in, the price point of the products — they’re well aware of the situation and what the economic conditions are here locally,” Prandini said.
Though there remain many eager homebuyers, Joe Leal, president and co-founder of Visalia-based San Joaquin Valley Homes (SJVH), said the pool of qualified buyers is not as large.
Leal said there was concern for the market in March, and even though they took a lot of precautions when it came to selling homes, the virus hasn’t slowed them down and they are at about the same level of sales as they were last year.
“There’s a lot of people that work in the public sector — firemen, teachers, professionals, correction officers — that don’t lose their jobs when these unfortunate things happen. Our buyer profile hasn’t changed that much. We have retirees, people who are relocating from other parts of California,” Leal said.
SJVH builds around 500 homes per year, Leal said.
Though things have slowed down, Leal is confident that there is still a pool of interested buyers. With economists and experts predicting an uptick in the fourth quarter of the year, he feels the company will be able to continue building homes.
“I don’t think it’s going to grow,” Leal said of the housing market, “but I think it’s going to be surprisingly stable. Most of the top builders are going to have a fairly stable year and that’s not what we were thinking in March.”
And now for some commercial
While new home construction can be described as stable, commercial builders have to summon patience in the face of the pandemic.
The Construction Monitor reported on June 10 that 491 commercial construction permits were issued with a $263.6 million value. The report for June 12 of last year shows 608 commercial permits issued worth $365.4 million dollars.
In 2017, commercial permitting reached its highest with 848 permits at a $712.4 million value.
While builders are wrapping up ongoing projects, they are unsure of what next year could hold.
Zumwalt Construction, Inc. in Fresno is a local commercial builder that is heavily in the medical, entertainment, hospitality and educational fields. Bob McKnight, president of Zumwalt Construction, said each field reacted differently to the pandemic.
Early on in the pandemic, elective projects — projects that weren’t a necessary demand for the business — were pulled and postponed, especially for hospitality and education projects.
The company has had projects pulled for educational facilities, including a homeroom building for a local grade school and a graduate study building for Fresno State.
While it has slowed down somewhat in the medical field, McKnight said there is some expansion in response to the pandemic, which is somewhat unusual during an economic downturn.
Because it could take a few years for a commercial project to be fully completed, builders are finishing up current projects, but because the pandemic is still raging, there is apprehension for taking on new projects.
“I’m not too concerned about the next four, five, to six months because the work we have is ongoing and we will continue,” McKnight said. “It’s a year from now — once businesses find out what their income is and how they’re moving — when most construction companies will have to take a really hard look,”
In a strong economy, McKnight said that companies expand with new projects, and during more uncertain economic times, those projects and monies are pulled. As recession becomes part of more conversations, people to hang on to their money, pushing us further in a recession McKnight said.
“Less money in the market, less money to move around — that means there is less money for expansion for someone else. I think we are going to see that for a while,” he said.