How is Covid-19 Affecting The High End Housing Market

Let’s start from the beginning here, Mid March this became an issue that was in the face of all Americans and many more throughout the world…..but how did that affect our niche market of high end custom homes in Southern California??

The middle of March was a very confusing time for everyone.  What was Corona Virus or Covid-19 as some were calling it?  Is it a publicity stunt by the Politicians?  How is this worse than the common Flu?  Is this going to affect the economy?  Then the news came…..Shelter in Place orders one by one throughout different Counties and States.  Orange County was one of the first to shelter in place with the exception of essential businesses.  The order comes in at 3:30pm from Orange County officials with VERY limited information on who was to stay home and what we are or not allowed to do.  SC Homes was diligent to make sure we took all precautions to shut down the projects immediately.  We sent out urgent messages to all Sub Contractors and clients letting them know that we are having to stop all work immediately.  But wait…..Orange County stated at 7:30pm that they rushed the order out too quickly they said and forgot to include contractors as “essential.”  Now all emails have to go back out to everyone letting them know that they can work and the County rushed their order.

This is how this Covid-19 issue has been going throughout the last 6 weeks, confusion and chaos at times.  We have some clients and subcontractors not wanting us onsite – and others who don’t understand why they have to where a mask.  Covid came into the public eye so quickly, it was like an earthquake with now warning and everyone adjusting as they feel is best.

At SC Homes, Inc, we don’t take this issue lightly and believe that everyone has an opinion that matters.  We know now that the economy is suffering with the shut downs, but we also know…..what goes down, always goes back up!  We believe that you cannot have “fear” and “faith” at the same time and we are choosing FAITH to get us through this!

Now, how is COVID-19 directly affecting the building industry in Southern California in the High End Market?  The one thing in our industry is that makes it a hard business to run is the fact that it is EXTREMELY volatile with huge swings up and down.  The one good thing with this COVID-19 issue is that we can forecast a little better than normal.  We are not seeing a current slow down with any of our projects we are working on now, but……..we know that the people in the planning stages of their new homes are stalling for now with the uncertainty of the World.  This will become a problem for late 2020 and early 2021 where we will not be starting homes we would have if this didn’t occur.    This is the first time we have seen where we can plan ahead and help our sub contractors prepare on a slowing economy.  With the PPP Loan protection, that may help a lot of the companies out there if the funding becomes available for them if they use it how they are meant to be used.

Here is a timeline as we see it:

March-June 

We see this time to stay close to the same as if Covid-19 never appeared.  Our jobs are locked to 10 people on the interior of each home at a time all required to wear masks.  We are seeing our supplies taking about 20% longer than prior to the virus along with unknown time frames with any product coming from overseas.  Banks are funding the projects without any changes.  Homeowners are concerned about their project continuing progress without any interruptions from the Cities, Counties or Subs.  Cities and Counties are doing exterior inspections on site with distancing and all interior inspections done via online video conferencing.

July-October

We believe that July will bring us back to normality with the City, County and sub activities.  We see the Cities and Counties opening back to the way things were prior to Covid-19.  We see our pipeline of work staying the same as prior to Covid-19.  We see the subcontractors becoming less busy which will create our projects to run quicker and smoother.  We see the banks funding as normal.  Minimal amount of plans coming in to bid new projects……

November – Early 2021

This is where we are seeing the problems start with our bubble of an economy.  We expect to have about 50% of the projects that we are currently running.  We expect the subcontractor labor pricing to be reduced by about 15% from where it was in early 2020 and materials to be about 8% less than early 2020.  We expect to see about the same percentage of remodels vs new builds as early 2020.  Usually we see this swing to a significant amount of increased remodels vs new homes in a poor economy because of the uncertainty, but we don’t see that in this case.

Who knows what the future really holds – but we do believe we can see a little more clearly in our crystal ball in this case…..let’s see if we are right!