Feb 13, 2020
After briefly peering into the abyss at the start of last year due to the housing pullback of late 2018, home builders were much more upbeat heading into 2020. Indeed, the NAHB Wells Fargo Housing Market Index, a measure of builder confidence, reached 76 at the end of 2019, its highest level in 20 years.
Against that backdrop, we asked production and custom home builders for their predictions at the start of 2020, while also polling remodelers, building material manufacturers, and market watchers about the industry trends they see shaping the year ahead.
With mortgage rates back below 4%, the builders we spoke with all exhibited cautious optimism.
“From everything we see, home sales will continue to increase in 2020 and beyond,” says Mark Metheny, Tampa division president at Miami-based Lennar. “Families and Gen Z are embracing homeownership as part of the American dream and as a way to build wealth quickly. Millennials will also contribute to sales growth, especially for the entry-level segment.”
That said, concerns about the next inevitable downturn still weigh on builders’ minds. Yet, healthy fundamentals are helping them stay positive.
“There is some worry about how sustainable the now 10-year-old economic expansion is,” says Mark Ledwell, owner of Northampton, Mass.–based custom home builder Wright Builders. “But interest rates remain low, employment is high, and, in our area, we see stability in the market.”
On the other side of the country in California, San Ramon–based Trumark Homes anticipates modest gains this year, after affordability issues led to lower sales velocity and flatter pricing in 2019. “We expect a slight improvement in both categories in 2020, but not a dramatic change,” says Gregg Nelson, co-founder and managing member of parent firm Trumark Cos.
In the heartland, Jeff Benach, principal of Chicago-based Lexington Homes, is anticipating more of the same. “I think most of the country will be fairly flat in 2020, as it was most of the second half of 2019,” Benach says, while noting that could spell opportunity for smaller regionals like himself to go up against public home builders this year. “As the only major local builder left post-recession, we’re able to be a lot more nimble than the nationals to compete with all of them in multiple locations.”
Built to Rent Here to Stay
A major trend of home building in 2019—the rise of built-to-rent single-family home communities—will continue to remain strong for the industry.
“Single-family rental operators are pursuing build to rent to augment their current practice of purchasing existing single-family homes,” says Chris Jasinski, managing partner and co-founder of Charlotte, N.C.-based home building mergers and acquisitions advisory firm JTW Advisors. “New homes require less capital expenditure than existing homes, and institutional investors are treating the new product like a horizontal apartment complex.”
Since single-family rental communities can be built at scale, in one location, rather than buying up multiple homes in different neighborhoods, those efficiencies are becoming an increasingly attractive aspect of the market—to both builders and investors alike.
The Rise of “Hipsturbia”
As millennial and Gen Z buyers enter the market, the locations home builders are targeting in 2020 are changing, too. Builders finally returned to the entry-level home market in 2019 to serve these price-conscious customers. Combined with the ubiquitous focus on connectivity and smart home tech, that means buyers today can literally afford to buy farther from job centers, since many no longer have a daily commute.
“The rise in remote work is already changing people’s preferences,” says Lennar’s Metheny. “The importance of a comfortable space is beginning to trump the need for short commute times.” He notes that with the recent emergence of “hipsturbia”—cool suburbs centered around creative office hubs—millennials are moving their urban lifestyles farther out. “They’re just taking their tech with them,” he says.
Smaller, More Efficient Designs Are on the Rise
With an emphasis on affordability, small homes are a big trend observers see in 2020. “Smaller homes are very much in demand,” says Marshall Gobuty, president of Sarasota, Fla.–based Pearl Homes.
While open floor plans and great rooms are still en vogue, an increased emphasis on efficiency is on the rise. “There’s a big concentration of smaller and more efficient design,” says Lexington’s Benach.
Buyers today are apt to see that front room off the entryway that never gets used as more of a detractor than a benefit. “Right-sized homes have been trending upward for a few years now,” says Richard Lee, owner of custom builder Lee Brothers Construction in Huntsville, Texas. “Families are becoming increasingly aware of the wasted square footage in their home.”
But even with that more diminutive focus, home builders still say the proof will be in the numbers as to whether Americans, who have traditionally seen bigger as better, will be able to downsize for the long haul.
“As cozy as they look, small homes aren’t for everyone,” says Peter Rotelle, CEO of South Coventry, Pa.–based custom builder Rotelle Development Co. “A lot of times, small homes just can’t house all of a customer’s belongings.”
Modern Farmhouse and Cottages Reign Supreme
When it comes to elevations, modern farmhouse and Craftsman styles are still the go-to favorites. “The rustic look has carried from original, real farmhouses to custom residences,” says Suzanne Maddalon, vice president at Boston-based master-planned communities developer Freehold Communities. “Shaker cabinets, industrial lighting, and reclaimed lumber are all very in.”
Many builders ascribe those preferences to the popularity of home improvement television. “We’re talking modern farmhouse influence for everything from the layout and exterior down to the furniture and finishes,” says Dylan Murray, owner of New York–based Murray Builders NYC. “Everyone’s going for a modern farmhouse style these days.”
But as popular as those styles are, material choices are also becoming more refined to distinguish different, modern interpretations on those classic designs.
“The popular farmhouse and Craftsman styles have evolved to incorporate elements of midcentury modern and industrial influences,” says Kriss Swint, director of marketing communications at Woodbridge, Ontario–based Royal Building Products. “Board and batten siding mixed with stone remains popular for a modern farmhouse look.”
Colors: Bold and Beautiful for 2020
Color choices will be anything but neutral in 2020. “Gray is passé, but black is back,” says Lexington’s Benach, who put black-and-white tuxedo kitchen cabinets in one of his models, as well as a master bath that showcases white cabinetry with ebony quartz countertops.
Adds David Dynega, CEO of Great Neck, N.Y.–based Detail Renovations: “This year is all about bold monochromatics, if you have the nerve to do it.”