Leading the Charge: Home Building Propping up the U.S. Economy

If you read my posts with any regularity, you know that once a month, I talk about the LegalShield Economic Stress Index, which, over the last 15 years, has been measuring the demand for various legal services among our nearly 2 million members, including individuals and small businesses. Time and time again, our suite of indexes has proven to be highly predictive of the health and direction of the U.S. economy, providing investors, regulators, customers, and business owners with actionable intelligence.

With the coronavirus raging this year, it has been fascinating, perplexing, and ultimately informative to see what has happened with our indexes over the past 10 months. And, also, in some aspects, counterintuitive. 

Several indices did the complete opposite of what we expected. Let’s look at housing construction and home sales which we thought would collapse as brokers could not show homes, and construction workers were not even allowed to work in some states due to mandates. However, this anticipated downturn was not born out in our data. Because the Fed dropped rates to all-time lows, mortgages became incredibly affordable—and simultaneously, the pandemic prompted many city dwellers to move and find more space in the suburbs.

Our most recent data from December confirms that the home building industry continues to lead an inconsistent, at times sputtering, economic recovery. The Housing Construction Index increased in December from 137.9 to 141.2 to reach the highest level on record, indicating that building activity will remain strong in the first quarter of 2021. Meanwhile, housing starts improved 1.2% in November and are up 12.8% from a year ago, the fourth month of double-digit annual growth since the pandemic began. Despite strong demand, it is possible that the housing construction boom could lose a bit of steam later in the year. The National Association of Home Builders warns of higher costs and delivery delays for building materials, shortage in skilled construction labor, and concerns about regulatory cost burdens.

Note also, that the Housing Sales Index reached an all-time high in December, indicating that demand for homes could sustain existing home sales throughout 2021.

Why the massive housing sales and construction boom? Millions of Americans who have fared well financially over the last 10 months remain eager to spend more on housing in 2021. Many are working from home for the foreseeable future, have been able to save money, and want to improve upon and expand their immediate, daily surroundings. 

But it’s not all roses and rainbows.  On the opposite side of the expanse are approximately 12 million renters who, at January’s end, will owe nearly $6K each in back rent and utilities, reflecting the K-shaped recovery that has become evident in the U.S. economy. The just-passed pandemic relief package includes a moratorium on evictions and foreclosures; it’s a release valve, easing the pressure, but is set to expire in September. This will likely bring us to a sober reckoning later this year.

For the time being, housing construction and sales are maintaining their positions as the strongest pillars of our economy. Despite the prevailing negativity around the pandemic and the chaos of the recent presidential election, consumer stress is staying put at a comparatively low level. This suggests that the latest stimulus package is helping to tamp down hardship among households whose finances have been most impacted by the pandemic. Temporarily.

At the beginning of this piece, I listed a few of the stakeholders, including perhaps you, that can benefit from the Economic Stress Index data. If you’re considering buying, selling, or building a home in the near future, this information should help influence your decision. Our personal choices of where and how we live are greatly dependent on the context of our greater society, the state of the economy, and the speculative direction of changes that are hard to accurately predict.

Information is power.

If you’d like to read the full summary, we always post a free, downloadable PDF on our website.