Inflation is forcing home builders to slow down and raise prices – San Bernardino Sun


By Alex Veiga Associated press

Even in the hottest U.S. housing market in over a decade, building new homes has become a frustrating, uncertain, and expensive proposition for many home builders.

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

Prices have skyrocketed this year due to 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 is meeting this week, and officials’ perspectives on when to start raising interest rates could show how concerned the Fed is about inflation.

The constraints on home builders are bad news for home buyers and are already facing historically low resale homes and record market prices. Economists fear that many first-time homebuyers will be valued by the market. Declines in affordable prices are one reason 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 plumbing fixtures and windows to tubs and appliances.

“Today we may have waited 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 it before.”

The pandemic has paved the way for high prices and shortages of construction products. Factories are temporarily inactive and demand is increasing due to unexpected booms in housing markets and a surge in home renovations, while catching up with production.

Lumber futures hit an all-time high of $ 1,670 per 1,000 board feet in May. They have since fallen to $ 634, about 10% more than a year ago. Nonetheless, wholesale prices in the category of residential construction parts, including windows, tiles, doors and steel, have risen 22% in the past 12 months, according to an analysis of data from the Ministry of Justice. Work carried out by the National Association of Home Builders. Prior to 2020, these total prices typically increased just over 1% each year.

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

Meanwhile, lumber savings have yet to be filtered out by many builders, including Thomas James Holmes, who operates in Colorado, Washington, California.

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

Homebuyers should not expect discounts due to falling lumber prices, as builders set prices primarily based on aggregate domestic market demand.

Contracts signed for homes that weren’t built usually include provisions for unforeseen construction costs, but builders usually have to absorb a significant increase before handing it over to the next buyer. I have.

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

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

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

The Board of Governors of the Federal Reserve believes that the surge in inflation will be temporary. But so far, rising costs for building materials and prolonged supply shortages have made everything from houses 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 around 85% of builders intentionally limit sales.

Zonda Chief Economist Ali Wolf said:

Despite inflation, builders took advantage of the hottest housing market in recent years. As demand for new homes increases, the number of US homes previously listed for sale has fallen to all-time low levels, pushing up prices.

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

Contractors typically hire contractors for framing, electrical, plumbing, and other aspects of construction. These companies face high costs in securing a skilled workforce and procuring the materials needed to do their jobs, so these 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’s working on those increases, sometimes beyond the prime contractor group.

one way Trigger point Other builders are also dealing with production delays, for example asking contractors to install temporary equipment and fixtures so buyers can move in as soon as possible.

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

To stay ahead of rising costs, Tri Pointe has raised house prices and reduced incentives to buy as needed. Yet builders have upped their forecasts for the number of homes they plan to offer this year from 6,000 to 6,300.

Large, publicly traded builders can afford to buy building materials and store them in warehouses until needed, while smaller builders, who make up the majority of the industry, are the thanks of their suppliers.

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

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

Inflation is forcing home builders to slow down and raise prices – San Bernardino Sun Inflation is forcing home builders to slow down and raise prices – San Bernardino Sun


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