The impact of today’s economy on the home building industry is being felt everywhere. This blog by Rebecca Lowrey Real Estate Group in Huntsville, Alabama explains what we are all experiencing in these difficult times:
New Construction Changes – March 8, 2022
Today I want to share some information about new construction in Northern Alabama. More and more builders are waiting to price their homes until they’re nearly complete. In the past, they would price their homes at the beginning of construction, but they aren’t anymore because there are just too many price fluctuations for building materials right now.
Builders are also either limiting their number of pre-sales or not doing them at all these days. Some of them have wait lists or a certain number of pre-sales they can contract monthly. A pre-sale is a home you purchase before construction begins, so you’re selecting the floor plan and interior finishes ahead of time.
“Price increases can happen on building materials at any time.”
We’re also seeing more builder contracts because the price at contract for building a home is calculated based on the current building material prices, and price increases can happen on building materials at any time. For the same reason, we’re seeing more escalation clauses on new-builds, and if it goes into effect, the initial contract price rises by the percentage written in the escalation agreement. It’s an increase in your financed amount, not an immediate out-of-pocket expense.
Luckily, there are still builder incentives in this market. Some will pay a portion of the purchaser’s closing costs if they use the builder’s preferred lender; it’s commonly a local lender or an extension of the builder’s company.
Below is an update on the current housing market that was posted on March 11, 2022 on the Builder Magazine online edition by Vincent Salandro:
RISING COSTS, SUPPLY CHAIN CHALLENGES CONTINUE TO HINDER HOME BUILDING
Builders are reducing SKUs in an effort to work around continued supply chain disruptions.
By Vincent Salandro
Amid a period of robust home buying demand, supply chain disruptions are hindering companies at every stage of the home building process, creating backlogs and shortages across the country.
Pandemic-related factors have caused raw material prices to rise significantly in the past few months after a period of moderation, and transportation delays have caused sourcing issues for builders in many key product areas, including windows, garage doors, and appliances. Raw material prices are having a direct impact on home price appreciation, with the NAHB estimating lumber price increases have added $18,600 to the price of an average new single-family home since the fall.
A survey of home builders by Zonda conducted in January found 90% of builders increased prices month over month; the majority of respondents said price increases were a direct pass-through because of rising material prices. The magnitude of price increases also are growing larger compared with more moderate price hikes between $3,000 and $5,000 in the fall months of 2021. According to the Zonda survey, approximately one-third of the reported price increases from the January survey are between $10,000 and $20,000.
The Zonda survey also indicated that nearly 90% of builders were intentionally capping sales due to production capacity issues related to the supply side and inability of inventory to meet high demand. Approximately 93% of builders are reporting that supply disruptions are still a “major issue” to their businesses.