Inflation forces homebuilders to take it slow, raise prices | The Daily Reporter – Milwaukee, Wisconsin

Milwaukee, Wisconsin 2021-09-20 13:00:43 –

Lumbers will be piled up on June 24th at a residential construction site in Middleton, Massachusetts. Rising costs and shortages of building materials and labor have spread throughout the homebuilding industry, accounting for about 12% of total US home sales in July. (AP photo / Elise Amendra)

AP Business Writer

Los Angeles (AP) — Even in the hottest US housing market for more than a decade, new homebuilding has become a frustratingly uncertain and costly proposal for many homebuilders.

Rising costs and shortages of building materials and labor have spread throughout the homebuilding industry, accounting for about 12% of total US home sales in July. Construction delays are common and many builders are urging them to put a brake on the number of new homes for sale. As it becomes more expensive to build a new home, some of those costs will be passed on to the buyer.

Prices have skyrocketed this year amid a shortage of products and parts across the economy, from automobiles and computer chips to paints and building materials. The Federal Reserve Board of Governors meets this week, and officials’ outlook on when to start raising interest rates could show how worried the Fed is about inflation.

Constraints on homebuilders are unwelcome news for homebuyers and are already facing historically low resale homes and record prices on the market. Economists are worried that many first-time homebuyers are being priced by the market. Affordable declines are one of the reasons home sales have slowed in recent months.

At Sivage Homes in Albuquerque, New Mexico, builders’ efforts to keep construction on schedule are delayed almost every day, from sanitary fixtures and windows to bathtubs and appliances.

“Today, we may have been waiting for literally 30 days, and in some cases 60 days, for some reason,” said CEO Mike Sivage. “I’ve been doing this since 1986, and I have to say I’ve never seen anything like this before.”

The pandemic has set the stage for high prices and shortages of construction products. Factories are temporarily idled, and demand is rising due to unexpected soaring housing markets and a surge in home remodeling, while at the same time catching up with production.

Lumber futures jumped to an all-time high of $ 1,670 per 1000 board feet in May. Since then, they have fallen to $ 634, about 10% higher than they were a year ago. Nonetheless, wholesale prices in the home building parts category, including windows, roof tiles, doors and steel, have risen 22% in the last 12 months, according to an analysis of Labor Ministry data conducted by the National Association of Home Builders. Prior to 2020, such total prices typically rose by just over 1% each year.

These conditions may persist. “There are ongoing and, in some cases, increasing challenges, for flooring and other types of building materials,” said Robert Dietz, chief economist at NAHB.

Meanwhile, lumber savings have not yet been filtered by many builders, including Thomas James Holmes, who operates in Colorado, Washington, California.

“The price we pay for timber today is the same as we paid 90 or 120 years ago,” said builder president John Tattersall, who said the overall construction cost of his company was. He said it has increased by about 30% since November.

Homebuyers should not expect discounts due to falling timber prices, as builders set prices primarily based on the overall demand of the home market.

Signed contracts for homes that haven’t been built usually include provisions for unexpected construction costs, but builders usually have to eat a significant increase before handing it over to the next buyer. I have.

“For our future, they are what we have to raise costs,” said Tattersole.

Rising prices for building materials are not the only factor driving builders’ costs. During the pandemic, the chronic shortage of skilled construction workers worsened, forcing builders to take into account higher labor costs.

Inflation is felt throughout the economy. Consumer prices in August rose 5.3% year-on-year. At the producer level, inflation surged further to 8.3%, the highest annual profit ever.

The Federal Reserve Board of Governors believes that the surge in inflation will be temporary. But so far, rising building material costs and prolonged supply shortages have made everything from homes and apartments to commercial buildings more expensive.

To manage, many builders are delaying the deployment of new homes. Real estate data tracker Zonda Economics estimates that about 85% of builders intentionally limit sales.

Zonda’s Chief Economist, Ali Wolf, said:

Despite inflation, builders have benefited from the hottest housing market in the last few years. While demand for new homes is rising, the number of US homes previously for sale has fallen to historic lows, pushing up prices.

According to the Commerce Department, the median new homes sold in July rose 18.4% year-on-year to a record $ 390,500. According to the National Association of Real Estate Agents, the median price of existing homes rose 17.8% to $ 359,900 in July.

Contractors usually hire contractors for framing, electricity, plumbing, and other construction aspects. These companies face high costs to secure a skilled workforce and procure the materials needed to do their jobs, so those increases must be passed on to builders. It was.

Building homes in 10 states, including California, Texas, and Maryland, Tri Pointe Homes faces higher labor costs. CEO Dougbauer said he is working on these increases, sometimes beyond the core contractor group.

One way Tri Pointe and other builders deal with product delays is, for example, to ask the contractor to install temporary equipment and fixtures so that the buyer can move in as soon as possible.

“Then, we’ll go back to the installation as soon as the original item is available,” Bauer said.

To stay ahead of rising costs, Tri Pointe raised home prices and reduced buyer incentives as needed. Still, builders have increased their guidance on the number of homes they plan to offer this year from 6,000 to 6,300.

Large publicly traded builders have the means to buy building materials and store them in warehouses until they are needed, while small builders, who make up the majority of the industry, are at the mercy of their suppliers.

Sivage, where the company builds homes for $ 250,000 to $ 1 million, was able to fix timber prices with its suppliers a year ago. In recent years, the situation has changed as the demand for timber has increased. Well, Sivage doesn’t know how much it will cost him until it’s ready for delivery.

“We had to endure it with a smile,” he said.

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