Despite a desperate shortage of homes for sale, housebuilders across the States are slowing down the production of new homes.
Rapidly increasing raw material prices, land shortages, and a depleted labor pool are among the main factors that have caused single-family housing builds to drop by 13% in April.
This slump, as reported by the U.S. census is the largest decrease since April 2020, when the pandemic had forced much of the U.S. economy to close.
Responding to the figures, Peter Boockvar chief investment officer at Bleakley Advisory Group, said – “I have to blame the difficulty in procuring lumber and other products, along with labor issues for the miss, in addition to likely cancellations due to skyrocketing costs for single-family starts.”
The cost of existing and new homes is already at record levels with no sign of the market stabilizing any time soon. Indeed, according to the latest figures, the cost of housing is skyrocketing at its fastest rate in 15 years.
In a recent survey by the National Association of House Builders, about half of all building contractors are now adding escalation clauses to their sale prices. According to a recent post on their site, these clauses specify that if the cost of building materials rises by a certain percentage, the customer will be responsible for paying the higher price. Such clauses allow all relevant parties to be on notice that contract costs are subject to change if the prices of the materials rise due to supply limitations outwith the builder’s control.
In the NAHB monthly sentiment survey, builders said they were slowing production to allow them to deal with higher costs for steel, copper, gypsum, and timber. Costs for these commodities have soared this year, with some of them reaching record highs.
According to the Producer Price Index, a wide mix of residential construction materials is up on average 12.4% from this time last year. The rising cost of lumber is one area that is particularly badly hit. According to estimates from the NAHB, increased lumber costs have added $36,000 to the cost of an average single-family home.
There are also labor shortages to contend with. According to the Bureau of Labor Statistics construction employment in April was below its pre-pandemic peak.
Ken Simonson, an economist with the industry trade group Associated General Contractors of America said – “Contractors are experiencing unprecedented intensity and range of cost increases, supply-chain disruptions, and worker shortages that have kept firms from increasing their workforces. These challenges will make it difficult for contractors to rebound as the pandemic appears to wane.”
It isn’t just construction materials that are affected. According to Mike Fratantoni, chief economist for the Mortgage Bankers Association issues with the supply chain are also affecting items like white goods. Speaking this week he said –
“Builders are also reporting difficulty obtaining other inputs like appliances. These supply-chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates.”