There’s a housing inventory shortage, but builders are in a happy mood

Emily Michot/emichot@miamiherald.com
·5 min read

Homebuilders are an optimistic bunch. They normally purchase land or finished lots, spend thousands on lumber and myriad other materials, and start putting up houses — often before the first customer walks in the door.

That’s not the case now, though, and hasn’t been for months. Because of the shortage of existing homes for sale, builders are selling everything before they even put a shovel in the ground.

According to market research firm Zonda, builders with available inventory are generally still selling well. In November, sales hit a seasonally adjusted annual rate of 744,000: a 12% gain from 662,000 in October.

Perhaps that’s why builders are so upbeat right now. Even faced with a number of “stubbornly persistent” problems, the “builder sentiment index,” as calculated by their trade association, actually moved higher in November.

After all but closing down this fall after running out of product, some builders — but not all — are starting to reopen their operations, according to John Burns Real Estate Consulting. In a recent survey, a Dallas builder told the firm they have a “huge number of communities coming online” soon. In Naples, Florida, a builder who had been sold out is taking reservations again; ditto for a builder in Chicago. In the D.C. area, another builder is no longer operating with sales caps.

Meanwhile, housing starts reached a 1.68 million annual rate in November, the most houses under construction in a single month since 1974. Yet a record 152,000 houses have been permitted but not yet started — that’s more than double the normal level. Builders are probably waiting to start some houses until they have a firmer grasp on prices, housing blogger Bill McBride suspects.

All this is taking place against a backdrop of supply chain issues, a dearth of building lots and a labor shortage. Any buyers venturing into today’s new home market should expect their houses to take longer to build and contain more cosmetic defects than usual.

Oh, yeah — and higher prices. Prices jumped anywhere from 17% to 19% in the 12-month period ending on Oct. 31, depending on whose report you read.

The lack of building sites and workers has been covered in this column and elsewhere for months. But to bring the situation up to date, lot availability is at a multidecade low, reports Robert Dietz, the National Association of Home Builders’ chief economist. And the construction business has more than 410,000 open positions.

In its latest survey, 76% of its members said the supply of available lots was either low or very low — an all-time record “by a wide margin” since the NAHB started collecting this data in the 1990s.

The NAHB also reports that more than half its builder-members need help in 16 different trades, with 9 out of 10 experiencing a dearth of carpenter subcontractors. Remodelers, who tend to have their own staffs as opposed to hiring subcontractors, are facing the same, with 4 out of 5 saying carpenters and concrete workers are impossible to find.

In another Burns survey, the consulting firm reported these comments from its clients: “Struggling to fill entry-level manual labor positions”; “Truck drivers are extremely hard to find”; “Difficult to find employees of both truss design and production,” and “Assembly and plant-based positions are the toughest to fill.”

Dietz expects the industry’s skilled-labor shortfall to grow as builders start more houses. Indeed, he says the shortage will likely emerge as the chief industry challenge once supply chain issues ease. And those don’t look like they’re going away anytime soon. Already, upwards of 120,000 houses are in various stages of completion, many sitting idle while their builders wait for parts, according to one report.

Like most of his colleagues, Idaho custom homebuilder Steve Martinez cannot obtain the necessary materials to complete several houses. He recently told a panel of lawmakers his unfinished houses are just sitting there “with nothing going on, accruing interest and deteriorating quality.”

It’s costing not just him, but his subcontractors, suppliers and buyers thousands, he said.

“This isn’t money that is going into upgrades or amenities,” said Martinez, but rather “to build the exact same house they thought they were getting when we signed contracts.”

Dietz reports that supply chain issues are impacting everything from appliances to vinyl siding, “including the kitchen sink.”

As a result, says Janet Benavidez of Shea Homes, houses that normally take six to eight months to build now take 10 to 12 months — or more. Even workarounds, like temporarily subbing appliances, aren’t helping. “We’re trying to find solutions,” she says, “but many of our products are still sitting on ships.”

The upshot is that by November, building material prices year-to-date had jumped 14.1%, more than tripling the increase for the same period in 2020, reports another NAHB economist, David Logan.

And it’s not just lumber. Since August 2020, prices for steel products are up 151%, with 80% of that increase taking place in 2021. Ready-mix concrete rose 6.6% in the first 11 months of 2021 — the largest year-to-date jump in November since 2005.

The cost for gypsum products dipped a tad in November, but prices had already climbed 18.8% up to that point. Even the prices for paint — aka “architectural coatings,” in the monthly Producer Price Index report released by the Bureau of Labor Statistics — is up an unprecedented 16.7% for exterior paint and 10.9% for interior coatings.

The end result: The inventory of completed houses that have yet to find a buyer is just above the record low of 33,000, McBride reports, and about half the normal level. And Zillow says the shortfall of houses — that is, the number of houses builders have not built since the Great Recession, even though the demand was there — is something on the order of 1.35 million in the nation’s 35 largest markets.

“This isn’t a new boom cycle of construction” so much as what’s needed “to get even from the last bust,” says Zillow economist Jeff Tucker. “There is still a long way to go to catch up from more than a decade of slow construction, and some markets have longer to go than others.”

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.

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