LOS ANGELES – Even in the hottest US housing market in more than a decade, new home construction has become a frustratingly unsafe and costly endeavor for many home builders.
Rising costs and a shortage of building materials and labor are making themselves felt in the housing industry, which accounted for nearly 12 percent of all US home sales in July. Construction delays are common, leading many home builders to slow down the number of new homes they offer for sale. When a new home becomes more expensive to build, some of these costs are passed on to buyers.
Across the economy, prices have skyrocketed this year due to the shortage of manufactured goods and components, from automobiles and computer chips to paint and building materials.
The home builder restrictions are not welcome news for home buyers as they are already facing historically low levels of resale in the market and record prices. Economists fear that many first-time home buyers will be pushed out of the market. The affordability of affordability is one reason the pace of home sales has slowed in recent months.
At Sivage Homes in Albuquerque, efforts by builders to keep the construction schedule on schedule are undermined almost daily by delays in plumbing fixtures and windows to bathtubs and appliances.
“These days we could literally wait 30 days, maybe even 60 days for one thing or the other,” said CEO Mike Sivage. “I’ve been doing this since 1986 and I have to say that I’ve never seen anything like it before.”
The pandemic set the stage for higher prices and shortages in construction products. The factories have been temporarily shut down and are now trying to catch up with production, while demand has increased due to an unexpectedly hot housing market and an increase in home conversions.
Wood futures jumped to an all-time high of $ 1,670 per thousand board-feet in May. Since then, they have fallen to $ 634, about 10 percent higher than a year ago. Still, wholesale prices for a category of home building components that include windows, tiles, doors, and steel rose 22 percent in the past 12 months, according to an analysis of Labor Department data conducted by the National Association of Home Builders. Before 2020, it was typical for such total prices to increase a little more than 1 percent annually.
These conditions are likely to remain. Robert Dietz, chief economist at NAHB, said he had heard from builders that “there are ongoing and in some cases growing challenges” with floors and other building materials.
Meanwhile, the lumber savings have yet to be rolled over to many construction companies, including Thomas James Homes, which operates in California, Washington state, and Colorado.
“The price we pay for lumber today is the same price we paid before 90 or 120,” said Jon Tattersall, the construction company’s president, who found his company’s total construction costs have increased about 30 percent since November .
Home buyers should also not expect discounts from falling timber prices, as home builders set their prices largely based on overall demand in the housing market.
A signed contract for a house yet to be built usually includes a grant to cover unexpected construction costs, but generally, builders have to accept large increases and then pass them on to the next buyer.
“We have to increase the cost of our future ones,” said Tattersall.
Higher building material prices aren’t the only factor driving up building costs. The chronic shortage of skilled workers in the construction industry has worsened during the pandemic and forced building owners to factor in higher labor costs.
Inflation is being felt across the economy. Consumer prices rose 5.3 percent in August compared to the same month last year. At the producer level, inflation rose even steeper by 8.3 percent, the largest annual increase since records began.
The Federal Reserve expects the rise in inflation to be temporary. For the time being, however, the rising costs of building materials and the continuing shortage of supply are making everything from house to apartment to commercial building more expensive.
To cope with that, many builders are slowing down the introduction of new homes. Zonda Economics, a real estate data tracker, estimates that around 85 percent of home builders are intentionally limiting their sales.
“They’re trying to make sure they have the land ready, the workers ready, and the materials ready to actually sell the houses that have been sold,” said Ali Wolf, Zonda’s chief economist.
Even with inflation, builders benefit from the hottest housing market for years. Demand for new homes has increased while the number of pre-occupied US homes for sale has plummeted to all-time lows, driving prices higher.
The average price of a new home sold in July rose 18.4 percent year over year to $ 390,500, an all-time high, according to the Commerce Department. For existing homes, the average price rose 17.8 percent to $ 359,900 in July, according to the National Association of Realtors.
Builders typically hire contractors to handle framing, electrical, plumbing, and other aspects of the construction. As these firms faced higher costs to find skilled workers or to obtain the materials they need to do their jobs, they had to pass those increases on to construction companies.
Tri Pointe Homes, which builds homes in 10 states including California, Texas, and Maryland, is grappling with higher labor costs. It has worked through those increases and has sometimes gone beyond its core group of contractors, said CEO Doug Bauer.
One way Tri Pointe and other home builders deal with product delays is to ask contractors to install temporary facilities and equipment, for example, so buyers can move in as soon as possible.
“As soon as the original item is available, we will return to install it,” said Bauer.
In order to stay one step ahead of rising costs, Tri Pointe has increased its home prices and, if necessary, reduced the incentive to buy. Even so, the builder has raised its forecast for the number of houses it is expected to deliver this year from 6,000 to 6,300.
While the large, publicly traded construction companies have the resources to buy building materials and store them until needed, the smaller construction companies that make up the bulk of the industry are at the mercy of suppliers.
Sivage, whose company builds houses priced between $ 250,000 and $ 1 million, was able to set the price of wood with suppliers a year in advance. That has changed in recent years with the increasing demand for wood. Now Sivage doesn’t know what it will cost him until it’s ready for delivery.
“We had to grin and take it,” he said.
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source https://www.bisayanews.com/2021/09/26/inflation-forces-homebuilders-to-take-it-slow-raise-prices-real-estate/
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