Inflation forces homebuilders to take it slow, raise prices
Even in the hottest U.S. housing market in more than a decade, new home construction has turned into a frustratingly uncertain and costly proposition for many homebuilders.
Rising costs and shortages of building materials and labor are rippling across the homebuilding industry, which accounted for nearly 12% of all U.S. home sales in July. Construction delays are common, prompting many builders to pump the brakes on the number of new homes they put up for sale. As building a new home gets more expensive, some of those costs are passed along to buyers.
Across the economy, prices having spiked this year amid shortages of manufactured goods and components, from cars and computer chips to paint and building materials. The Federal Reserve meets this week and officials’ outlook on when they might start raising interest rates could indicate how worried the Fed is about inflation.
The constraints on homebuilders are unwelcome news for homebuyers, already facing historically low levels of resale homes on the market and record prices. Economists worry many first-time homebuyers are getting priced out of the market. The erosion in affordability is one reason the pace of home sales has been easing in recent months.
At Sivage Homes in Albuquerque, N.M., the builder’s efforts to keep its construction on schedule are undercut almost daily by delays for everything from plumbing fixtures and windows, to bathtubs and appliances.
“Nowadays, we literally could be sitting waiting 30 days, maybe even 60, for one thing or another,” 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 set the stage for higher prices and shortages of construction products. Factories went idle temporarily and are now trying to catch up on production at the same time that demand has intensified due to an unexpectedly hot housing market and a surge in home remodeling.
Lumber futures jumped to an all-time high $1,670 per thousand board feet in May. They’ve since dropped to $634, about 10% higher than a year ago. Still, wholesale prices for a category of homebuilding components that includes windows, roofing tiles, doors and steel, increased 22% over the last 12 months, according to an analysis of Labor Department data conducted by the National Association of Home Builders. Before 2020, it was typical for such aggregate prices to rise a little over 1% annually.
Those conditions are likely to persist. Robert Dietz, chief economist at the NAHB, said he’s heard from builders that “there are ongoing challenges, and in some cases growing challenges, with flooring, other kinds of building materials.”