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Friday December 18, 2020

Over the last few months, we have discussed how the new construction of single-homes
is driving up the Builder-Confidence Index, while simultaneously representing a threat to the
apparently endless increase in housing prices. As we have noted, lack of inventory is a major
reason for the unexpected increase in home values; we would be remiss if we did not
acknowledge that the people who remained in the hunt for a new home during the COVID
pandemic are typically very-high earners, which also impacts the final sales price of a home. It
appears builders are diversifying their portfolio, as there has been a significant increase in
multifamily units under construction.

In November 2020, builders began construction on a seasonally adjusted annual rate of
1.55 million. a 1.2% increase from October 2020. This number represents a 1.2% increase from
October 2020, a 13% increase from November 2019, and the highest rate of building permits
being issues in fourteen years. In November 2020, building permits were granted at a seasonally
adjusted annual rate of 1.64 million; this is up 6.2% from October 2020 and 8.5% from
November 2019.

The reason for this surge can be traced to builders embracing the needs of the multifamily
sector, a sector that includes apartment buildings as well as condos; this has given builders
another market that is virtually starving for their attention, and this has become very apparent
between October 2020 and November 2020. Between October and November 2020, the country
saw an 8% increase in construction projects on multifamily units, whereas there was only a .4%
increase during the same period for single-family homes. Similarly, between October and
November 2020, permits for homes with 5+ structures increased by 23%, while permits for
single family structures in that time only increased by 1.3%. While these numbers are significant,
do not be fooled into thinking the single-family home business is faltering. The reality of the
matter is that single-family home construction has been thriving for months, so a 1% increase
could easily represent 10,000 homes, and the 23% increase for multifamily units could represent
1,000 (we are not looking at the numbers, but it is true that 1% of a big number can be higher
than 23% of a smaller number).

At the Chernov Team we understand that knowledge is power, and knowledge of the
construction market is directly applicable to the real estate market as a whole; it is powerful
knowledge indeed. At the Chernov Team we know that whoever comes to the table most
prepared leaves with the most, and the Chernov Team always leaves the table with the most.


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