Residential Market Remains Resilient Despite COVID-19 in a Tough Economic Climate

When you look through the economic gloom caused by the COVID-19 coronavirus, one pocket of prosperity stands out — the nation’s housing market. Home sales are strong, mortgage rates are near historically low levels, selling prices are up, and folks don’t need to keep their homes on the market for too long because of demand in many markets.

Wall Street has taken notice, and as you can see from the stock price data on the chart below, most of the largest publicly owned home builders have enjoyed seeing their share prices take flight and far out-pace all of the major market indices by a wide margin. Meritage Homes Corp.’s shares are up the most at +74.45% year-to-date (YTD), but four other large home builders are beating the market: Lennar Corp. (+43.22%); Hovnanian Enterprises (+36.35%); and Toll Brothers (+21.22%).

While the main focus in the electrical wholesaling industry tends to be on the much larger commercial and industrial markets, the residential market is still an important niche for many electrical manufacturers, distributors, independent reps, electrical contractors and other end users. It accounts for an estimated $23.2 billion in sales for 2020 — 19% of total distributor sales — according to data from Electrical Wholesaling’s 2020 Market Planning Guide.

The most recent building permit data points to a healthy market in the coming months (see details on page 5), and there’s plenty of anecdotal evidence that many of these new homes will be larger and loaded with the latest in home office and outdoor entertainment areas because of the trend toward working at home and large number of city dwellers moving to the suburbs and ex-urban or rural areas.

As a specialist in custom-built luxury homes in 24 states, Toll Brothers enjoyed huge year-over-year growth in signed contracts for new homes. According to a recent company press release, midway through Toll Brothers’ fiscal 4Q 2020, from Aug. 1 through Sept. 15, the company’s net signed contracts increased +110% year-over-year to 1,678 homes, compared with 800 homes for the same period in its 2019 fiscal year.

Douglas Yearley, Jr., Toll Brothers’ chairman and chief executive officer, said in the press release, “We attribute the accelerated buyer demand to a number of factors, including historically low interest rates, a continued undersupply of homes, and a growing desire for a home that can be personalized for today’s evolving lifestyles. Our luxury build-to-order business model is ideally suited to meet these trends. With our diversified product lines and well-located land, we believe we are positioned for growth in FY 2021, assuming market fundamentals remain favorable.”

The biggest challenge in the residential market is the atmospheric prices of lumber, which rose +170% from April to an all-time high in August and moderated only slightly in September, according to the National Association of Home Builders (NAHB), Washington, D.C. NAHB says this increase has driven up the cost of the average new home by $16,148 since April 17.