Residential construction trends: back to business as usual in 2021

Industry Insights

The residential construction trends prevalent so far in 2021 are clear: after a drop in monthly project volume in 2020, home builders are back to managing pre-pandemic job volume. Contractors with construction projects priced below $250K saw a slower return to form instead of the net drop in project volume that contractors with projects priced over $250K saw. See below for the full distinction between the two contactor groups used throughout this post. By analyzing the number of monthly active projects contractors have had from 2019 to 2021 we’ve identified the following trends in project volume.

A note on terminology

In this report, residential construction companies are classified as either home builders or small construction firms. This distinction is based on the number of yearly active projects priced above $250K. 

  • If a company had more total projects over $250K than under $250K, or
  • If projects priced over $250K made up 40% or more of the total projects a company started in a year, they were identified as home builders. 
  • Companies that did not meet the above criteria were classified as small construction firms. 

Why the split? Dividing companies into these two buckets highlights residential construction trends and gives insightful analysis to the two main subgroups of CoConstruct users. 

This report is based on the number of active monthly projects a company has in a month. In CoConstruct’s construction software, projects are counted as active projects from when a client has electronically signed a proposal up through a closing punch list after a home or renovation has been completed. For this reason, it wouldn't be accurate to compare active projects to nationally reported metrics such as project starts or single-family permits issued. Instead, active monthly projects are used to gauge the number of projects a company is handling at one time throughout all the phases of construction, from preconstruction through closing. When measured over a time series, this data point identifies how residential construction companies' books of business ebbs and flows. 

After a production drop-off in 2020, contracts are back to normal operating levels in 2021

Residential Construction Trends: Home builders vs small construction firms monthly project volume

In 2019 the average monthly active projects for home builders fluctuated between 5.6 projects in January to a high of 7.2 projects in September. Home builders' active projects then precipitously dropped off to end 2019 and did not recover until January of 2021. Across 2019 home builders averaged 6.3 active projects per month before averaging 3.2 in 2020 and 6.6 so far in 2021. The consistent low volume of active projects in 2020 compared to 2019 and 2020 likely means that 2020’s data is a result of pandemic-related challenges. Whether it was uncertainty, higher material costs, supply chain issues, or other factors, projects stalled early in 2020 for home builders and they weren’t able to fully refill their pipelines until early 2021. 

Small construction firms, on the other hand, saw a smaller dip in active projects to start 2020 and recovered to pre-pandemic project levels by August. These small construction firms then saw a larger decrease in monthly active projects in Q1 of 2021 but rebounded by April. The cyclical nature of monthly active projects rising and falling suggests that pandemic effects are to blame for the sluggish return to normal project volume in 2020 compared to 2021. For small construction firms, pandemic effects only manifested in a slower return to normal production volume. For home builders, the effects of the pandemic caused a severe drop in monthly active projects for a full year. 

Home builders projects volume is more consistent in 2021 than 2019

Residential Construction Trends: Home building monthly volume year over year

Monthly active projects have been more consistent for home builders in 2021 than the two previous years. In 2019, with the exception of December, monthly active projects fluctuated by 0.5 projects month over month. In 2020 that fluctuation dropped to a difference of 0.2 and so far in 2021 monthly projects only differ by 0.1. While in 2020 the reduced month-to-month fluctuation in active projects likely was a result of pandemic uncertainty, in 2021 the consistent active project volume is more likely a residential construction trend of persistent increased demand. 

Small construction firms quickly rebounded from project volume seasonality early in 2021

Residential Construction Trends: small construction firms monthly project volume  year over year

In the last two years, small construction firms began their bounce back from Q1 dips in project volume by May of 2020 and January of 2021. While the bounce back in 2020 was delayed, it gained ground faster. Four months after starting their rebound, small construction firms were back to 98% of their previous monthly active project volume in 2020. In 2021 these same firms were only back to 89% of their previous volume four months into their respective comeback. The quicker response following a delay in 2020 could be partially attributed to pandemic-related concerns delaying projects and then previously delayed projects all piling up at once. If this is the case then the seasonal dip and resulting bounce residential construction firms saw in 2021 could be more in line with normal seasonality.

Home builders are finally getting back to business as usual in 2021

Residential Construction Trends: Home Builders monthly project volume

In 2021 the share of CoConstruct home builders with 1-2 monthly active projects is still high compared to 2019 levels but it has dropped significantly compared to 2020 levels. At their highest in April 2021, home builders with 1-2 monthly active projects were 58% of all home builders. That is nearly double the size of that group from June of the previous year. The residential construction trend of home builders with 1-2 monthly active projects rising in 2020 perfectly coincided with an increase in home builders with 3-5 monthly active projects and a decrease in home builders with 5+ monthly active projects.

This deviation likely shows that as residential construction project duration increased in 2020, two interdependent events occurred. Projects on the books were either on hold or delayed due to the effects of the pandemic and subsequent projects were not added to the pipeline until later in the year. This development likely pushed a larger contingent of home builders from the 5+ active project group into the 3-5 and 1-2 monthly active projects groups as projects were finished or canceled without enough new projects to backfill the sales pipeline. Notably, this residential construction trend has nearly reset itself in 2021.

Small construction firms didn’t see much project volume deviation in 2020

Residential Construction Trends: share of small construction firms by monthly volume

Unlike home builders, small construction firms did not see drastic changes in monthly active projects specifically in 2020 or over the last three years. Instead, changes have been fairly consistent over time with the exceptions of Q1 each year which usually contains a seasonal outlier. 

Where we got our numbers 

CoConstruct’s construction management software helps over 100,000 building professionals manage clients and trade partners, schedule work, track financials, and more. By aggregating and analyzing the data builders input into the system, CoConstruct can identify residential construction trends and highlight emerging issues in the industry. By using and sharing this information CoConstruct is doing its part to eliminate the chaos of project management and help create rewarding experiences for both home builders and clients.

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Harry Wahl
Harry Wahl
Marketing

Harry helps create data-driven content for the residential construction industry including case studies, customer stories, industry trends and more.