Top Challenges And Opportunities For New Construction In 2021
Housing demand far outpaces available supply nationwide. Underbuilding over the last 20 years and a shrinking inventory of existing homes for sale has led to a housing shortage of 5.5 million units, based on research from a recent National Association of Realtors report.
At the same time, industry-wide material scarcity, price increases and labor shortages have hit builders hard and made it a struggle to finish projects on time and as planned. I don’t say any of this to discourage anyone from buying a new home right now. On the contrary, the product hasn’t suffered at all despite the hardships. Buyers are thrilled with their homes when they move in, and I want to give kudos to all the industry professionals who have overcome obstacles and buyers who have rolled with the punches during a wild year and a half.
But if you are looking to buy a home soon, it’s important to understand the current environment so you’re prepared for the ups and downs. If you know to expect these three challenges, you will save yourself a lot of frustration, time and money in the long run.
1. Availability Of Materials
The pandemic created the perfect storm of supply chain difficulties. Many manufacturers halted or slowed production during lockdowns last year. Now their inventory is depleted, and they still haven’t ramped production back up to meet the huge demand from both builders starting new constructions and homeowners tackling DIY renovation projects.
We are seeing empty shelves and long delays for a long list of essential items: paint, paint rollers, front doors, glass shower doors, electrical boxes, insulation, rebar, appliances. In a perfect world, it would take 100 days to build a house if everyone showed up as scheduled and we had good weather. Now the lead time for appliance delivery is 12 to 16 weeks instead of two to three weeks. Contractors are scrambling to buy supplies on Amazon or other online stores, and if they can’t find them, they simply have to wait. I know a builder who has five homes ready to sell for $800,000 each, but they are sitting vacant until he can find insulation.
2. Price of Materials
Our lumber package for new homes jumped from $20,000 to $60,000 in the last 18 months, which is in line with the national trend. Lumber prices surged 300% from April 2020 to May 2021, increasing the average price of a new single-family home by almost $36,000, according to data from National Association of Homebuilders. Prices are now starting to come back down, but the consequences won’t disappear overnight, we don’t raise home prices based on the fluctuating cost of materials.
The strong buyer demand has actually been a blessing in this regard. We have seen a 15% increase in house values in the last 18 months in the Eugene and Portland areas. Without the housing shortage and the influx of out-of-state buyers moving to Oregon, we would have been forced to stop building until prices stabilized.
3. Labor Challenges
Workforce issues are affecting virtually every type of business in the industry. Businesses that provide construction, painting or landscaping services are having a hard time staffing crews, as some workers are taking advantage of extended unemployment benefits.
Title companies, appraisers, lenders, brokers and other office-based businesses have also had to figure out how to work remotely during the pandemic while keeping up with an increased workload. In our local area, 10% more homes sold in Q1 of 2021 than Q1 of 2020. Everyone is trying to close more homes with a smaller staff, and it can lead to delayed close dates, frustrated buyers and burnt-out employees.
Recommendations For Navigating New Challenges
There will always be hurdles to deal with when building a new home, whether it’s in 2021 or 2031. Here are three steps you can take to minimize stress and make the process go as smoothly as possible.
• Remember that it’s a team effort.
At least 50 people are involved in any new construction, and everyone is on the same team, from the buyer to the contractor to the title agent. Things that are out of anyone’s control will go wrong, and how each person manages these setbacks affects the entire team. I’ve worked with people who have handled tough situations with absolute grace, and others who have flown off the handle over every little thing. Patience and understanding go a long way in every interaction.
• Get familiar with the process.
Ask questions to make sure you understand the timeline, milestones and limitations of the build. Does the builder offer guarantees for getting materials? When does it make sense for you to do a walk-through? What do you want to negotiate upfront in the contract? For example, you may want to lock in your budget to avoid price adjustments or negotiate time to rent your home back in case of a closing delay.
• Commit to what you want.
Know that if you choose paint color, tile design or door style, it’s in your best interest to stick with it. Keep the lack of inventory and long lead times in mind when you make a final decision. It does not matter how simple a change may seem; right now, the reality is hardly anything is simple.
Now is an exciting time to be involved in new construction. The past 18 months have had their fair share of challenges, but they have also been a great example of what we can accomplish when everyone comes together with creativity and resilience.