Unprecedented undersupply is not a sustainable formula
Low mortgage rates and a severe shortage of previously occupied U.S. homes on the market have helped stoke demand for new homes this year, but supply chain problems and rising costs for building materials and labor have been a drag on the industry.
Big homebuilders like Scottsdale, Arizona-based Taylor Morrison Home Corp., have had to calibrate construction schedules to account for the supply crunch, which has caused delays and limited the number of homes for sale.
CEO Sheryl Palmer recently spoke to The Associated Press about the U.S. housing market, the impact of inflation and supply chain problems, and the company’s push to sell homes online. The interview has been edited for length and clarity.
Q: It’s been a strong year for the new-home market. How do you see it heading from here?
A: There are a lot of dynamics at work, but when I just look at the supply-demand needs of providing shelter, the trajectory we’ve seen, with pricing moving the way it has, and the level (of construction) — I think everybody slowed it down to match production, to allow production to get caught up — I think we have a good runway ahead for the industry.
Q: How have the building materials constraints and higher prices for key components like lumber affected your business?
A: We found ourselves with $1,600-$1,700 lumber for a good part of this year, really unprecedented levels. We went ahead and continued to build ... customers’ houses. They cost a lot more than we thought they were going to cost when we sold them the house, because it was such an unprecedented movement in lumber.
Q: The supply crunch has also lengthened the time it takes to build homes, correct?
A: It’s extending timelines a little bit. Most builders are deploying the same strategy, and that is aligning sales with production capacity.
Q: When you look at the surge in U.S. home prices this year, do you worry the pool of buyers who can afford a new home is shrinking?
A: There’s such an undersupply. When I look at affordability — I think the average was a 23% increase in (home) prices year-over-year — that’s unprecedented. Is that a sustainable formula? Absolutely not. Having said that, what’s also really interesting and has probably seeded some of that is if I were to look at a $400,000 house today and put a conventional loan on it — 20% down payment, 80% mortgage — my (monthly) payment would be lower today than it was a year ago, because interest rates have been so attractive.
Q: The pandemic helped popularize virtual home tours. Taylor Morrison is leaning into this trend with the launch of an online homebuying portal.
Will this have enduring appeal outside of a social distancing scenario?
A: The whole intent of the virtual suite is that there isn’t one-size-fitsall and we want to engage with the customer in the way that’s most comfortable for them. And if they want to do it in person, great. If they’re out of state, which is something that happens quite often, and they know the neighborhood and they’re comfortable doing it virtually, that works, too.