Housing flexed its resiliency amid the pandemic, but now rising material costs poses the industry’s next challenge
By BRIAN ALVARADO
For the past 12 months, the housing market has been one of the few bright spots amid the global pandemic. Despite the economy shutting down and millions out of jobs, the demand for homes kept builders across the nation active, with interest rates taking a dip and buyers looking to take advantage. Home buying activity was more vibrant than ever, and experts within the sector even questioned how housing had been able to thrive, let alone stay afloat. But as we near the middle of 2021, the industry must flex its muscles once again as a new challenge has presented itself — rising material costs.
February sales of newly built, single-family homes fell 18.2% to a 775,000 seasonally adjusted annual rate, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
In this month’s interview, National Association of Home Builders (NAHB) Chairman Chuck Fowke attributed this to the soaring costs of materials, especially lumber, which has had a 170% increase since April 2020.
“Some builders are obtaining their building permits and they’re not starting the houses. Some are starting their houses… then they hit the pause button and they’re going to wait to see what’s happening with lumber,” Fowke said. “And to the extreme, I think some builders have slowed down their sales because they know they can’t produce what they need to produce for their customers, price and time-wise.”
One astonishing statistic that Fowke brought up during the interview was that the price spike has driven up the average price of a new single-family home by over $24,000.
“We have had rising costs close to $24,000 for the average house. Every time (a house or average price of a house) goes up $1,000, we push 154,000 people out of the market trying to pursue the American dream. So you do the math and look at a $24,000 increase,” Fowke said.
But with the negative is a positive. The desire and demand is clearly there from consumers looking to purchase a home, and as long as our industry can get the resources it needs, the housing industry will continue to thrive as it did throughout the pandemic.
As reported by the Conference Board, the Consumer Confidence Index jumped 19.3 points from 90.4 up to 109.7 in March — the highest since the beginning of the pandemic. In a separate report by the New York Federal Reserve Bank, the December Household Spending Survey revealed a healthy increase in household spending over the past four months. Additionally, the average percentage of households looking to purchase a home within the next four months jumped from a low of 3.3% in August to 6.2% in December.
Another aspect of the industry that’s been affected by rising material costs is affordability — a continued issue that our nation has struggled to solve. According to the latest S&P CoreLogic Case-Shiller Index, home prices nationally in January were up 11.2% from last year.
In an article from NAHB, one industry professional from the East Coast explained that certain projects that would normally be great ideas to move forward with have been stalled.
“There are opportunities that now don’t make sense to proceed with, even though they would normally be great projects in underserved areas with both market-rate and affordable product,” Matt Stephens, a developer from New Jersey, said in the article from NAHB.
“It’s up to industry professionals to remain positive and advocate for regulation to solve the lumber crisis.”
So the writing is on the wall and the numbers back it up, housing has the potential to continue to boom. It’s up to industry professionals to remain positive and advocate for regulation to solve the lumber crisis and rising material expenses. As Fowke has been harping on in recent weeks, the Commerce Department should be doing its part in investigating as to why mills and producers of lumber are at low levels.
In the meantime, industry professionals must keep the optimism going and continue to do what they can to provide the inventory of homes that our country so desperately needs. As we’ve seen in the past year, adversity and uncertainty is something that the industry is no stranger to, and this bump in the road is nothing new. Although we can’t change current conditions in regards to materials overnight, we can do our best to lobby and urge lawmakers to look into the issue and work to resolve it in the most appropriate manner.
Brian Alvarado is the editor of Builder and Developer Magazine. He can be reached at email@example.com.