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Way Under
The Nation’s real estate market is significantly under-supplied.According to the most recent research from Freddie Mac, the United States has a housing supply deficit of 3.8 million units.The available inventory today is lower than it has ever been in the last 40 years and is 3.5x lower than the peak of 2008.The reason why available inventory is so low, is the low amount of new home starts that have occurred over the last 15 years.Builders have faced many obstacles trying to keep up with housing demand including supply chain issues, labor supply, land availability, water availability, and stricter approval processes.Fewer new homes were built in the decade ending 2018 than any other decade since the 1960’s.The reality is, the obstacles builders face are unlikely to change significantly in the foreseeable future.Low inventory is likely to persist.An under-supplied market is a key reason leading economists do not expect home prices to crash even while the market cools off.
Lumber Back Up
The price of lumber has jumped back up again and is adding to the cost of new home construction.
Over the past four months, lumber prices have nearly tripled, causing the price of an average new single-family home to increase by more than $18,600.
According to Random Lengths, as of the end of December, the price of framing lumber topped $1,000 per thousand board feet — a 167% increase since late August.
This most recent lumber price upsurge is due to a number of factors, including:
- Ongoing supply chain disruptions
- A doubling of tariffs on Canadian lumber imports into the U.S. market that increased price volatility
- An unusually strong summer wildfire season in the western United States and British Columbia
Predictions on what lumber prices will do during 2022 are mostly pointing to even higher costs for home builders and ultimately, new home buyers.
Construction Openings
It’s not just the availability of materials impacting home builders today, it’s also the availability of labor.
The market could use more inventory. Home builders are trying to catch up.
You’ve likely read the stories about the cost and availability of materials making an impact on home builders’ ability to keep pace with demand.
It turns out they have another factor impacting them as well- labor.
There are more construction job openings than ever before in history.
This is according to a new report from the Bureau of Labor Statistics.
There are 410,000 job openings in the Construction Sector.
A year ago there were 253,000.
If you know of anyone looking for work, there is a good chance a home builder could use the help.
Record Increase
Home builders have experienced their largest-ever increase in building costs so far in 2021.
This is according to the latest Producer Price Index report.
Year to date, building costs are up 14.5%. This amount tops the previous record of 7.1% which occurred in 2008.
Specific materials which have seen significant increases include lumber, drywall and steel.
The price of steel has risen 117% this year.
These material cost increases combined with increases in items like building permits and tap fees are causing home builders to raise their sales prices.
Lower Lumber
Lumber prices are becoming more normal again.
After soaring this Spring to record levels, they have lowered back to near pre-pandemic levels.
The current price for 1000 board feet of lumber is $577. This is 62% below the price this past May when it reached an all-time high of $1,515.
In the years leading up to the pandemic, prices tended to be between $350 and $500.
While this is great news for consumers and home builders, the prices aren’t drastically lower yet in the lumber aisle at your local bib-box hardware store.
This is because many retailers are still selling through their inventory of lumber which they purchased at higher prices.
However, for the long term, home buyers will benefit from the more normal lumber prices that now exist in the market.
All Time High
Home Builder’s confidence in Baby Boomer buyers is at an all time high.
The National Association of Home Builders (NAHB) surveys their members each quarter to discover what they expect of future sales.
The builders base a large part of their answer on how many people are visiting their sales centers and model homes versus the same time last year.
The results in their most recent survey show that builders have never been more confident about buyers who are 55 and older.
The confidence index for this age group is actually double of what it was in 2012. The NAHB sites low interest rates and strong job growth as the reasons for the high confidence.
