If Virus Stagnates, Look For Rebound

Following a three-month skid, housing starts should gradually ramp up beginning this summer, and reach where they were pre-virus later in this year and early next year, according to comments and data from officials at Forest Economic Advisors (FEA) during a webinar hosted by FEA March 24 on the impact of the virus on the national economy and the building products industry.

U.S. housing starts could drop by 50% to an 800,000 annualized pace from the 1.6 million pace they were on before the onslaught of COVID-19, according to FEA principal Brendan Lowney. But Lowney added that “the boom has been delayed, not denied. The underlying fundamentals are strong over the next several years.”

Lowney said ultimately the U.S. housing industry will out-perform the wider economy due to favorable demographics, solid family financial health with regard to debt load and the fact that the U.S. has been “dramatically underbuilding” and too-slowly transitioning from old homes to new ones, all which were factors starting to contribute to the housing hike earlier in the year.

The degree of FEA’s forecasted dip, while severe, still sees twice the number of starts than occurred at the bottom of the Great Recession. Lowney said the depth of the immediate decline, in addition to obvious business disruptions, depends on if construction is allowed to continue during the virus attack, adding that the federal government appears to be in favor of continued construction, though individual states can rule further on it. Likewise the federal government has recognized the wood products industry as an “essential critical infrastructure workforce” in the nation’s response to the COVID-19 pandemic.

Lowney said FEA’s forecast, while trending positive after a few months, does not show the immediate and dramatic V-shape rebound depicted in at least one other forecast.

He said FEA’s decline and upswing forecast hinges on the federal government’s fiscal response, which appears to be appropriate so far, and of course getting the virus under control.

In the meantime, according to FEA, unemployment could reach 16% in May from nearly non-existent, with the food service, recreation, accommodation and retail industries taking huge hits. GDP could experience a 12.6% decline in the second quarter, according to FEA, before turning positive in the third quarter and becoming more robust in the final quarter of the year and early next year.

Are we in a recession? “Technically, no; in reality, hell yes,” Lowney said, adding that the keys are duration—keeping it short—and government assistance to the people—substantial and quick.