by Juliet Jeske
6/6/21
Don Stockell, a custom home builder in Eureka, Missouri gets a lot of phone calls from potential new clients these days. He’s getting plenty of interest but some have sat down for multiple consultations, had detailed plans drawn up, only to change their mind when the final estimate comes in.
Even when Stockell gives a client an estimate he’s almost certain the price will rise before their home is finished. The main culprit for rising prices is the cost of lumber which has increased 400% in price since last Spring. But it’s not just lumber. Nearly every supply needed to build a house is hard to get and more expensive.
“We have four orders for large custom homes on hold, the owners are waiting for the price of lumber to come back down. It’s really just impacted our custom home building quite a bit,” said Stockell
In what could be the best of times for custom home builders has turned into one of the worst times. Since they can’t rely on the massive purchasing power of subdivision builders they are having a brutal time getting basic supplies needed to build a home. Stuck in the middle are highly-paid carpenters, roofers, contractors and other tradesmen.
In the first four months of the COVID-19 crisis most sawmills shutdown production and lumber suppliers sold off their inventory simply because the conventional wisdom was that the pandemic would lower demand for construction. The exact opposite happened.
As millions of Americans were forced to work from home many decided to ditch their smaller urban residences for larger suburban or rural homes. A combination of rock bottom interest rates, federal stimulus checks combined with a need for more space for things like home gyms and offices caused a spike in new and existing home sales.
The cost of materials has caused the price of a single-family home to increase $36,000 according to the National Association of Homebuilders. In a recent survey by the NAHB 90% of builders reported shortages of framing lumber, appliances and oriented strand board, a type of material used in the walls of new homes.
Source – National Home Builders Association – Survey published June 2nd 2021
Some clients are starting to get cold feet and back out of contracts which causes problems for builders, their workers and the supply companies they support. Custom builders are far more likely to buy their lumber and building materials from local suppliers than a subdivision builder would. When contracts fall through it hurts more than just the builder.
“We’ve been blessed, but I know a lot of builders that have put foundations in and then just stopped working,” said Steve Robbins of Robbins Construction Management. “They just told their contractor that they were going to wait it out.”
Custom builders also face challenges with suppliers who sometimes favor larger builders, the kind that can buy supplies and lumber months before they even break ground on a development.
“Some wood suppliers won’t work with smaller builders right now,” said Kim Hibbs of Hibbs Homes. “It’s just not worth it for them. If they don’t know the person’s reputation, they don’t bother. They can always find a buyer.”
All of these factors are affecting independent home builders who have to keep their workers employed and their suppliers paid on time. The scarcity of building supplies has doubled the time it takes for many builders to finish homes.
We are seeing essentially, the limits of capacity, constraints, our economy, apparently can only transition so fast,” said Michael Englund, chief economist Action Economics. “Now when demand increases, it just creates bottlenecks and lines and shortages.”
This week there was one sign that prices and delays might have finally been too much for some buyers. According to the Mortgage Bankers Association’s weekly survey, applications for new mortgages are down to their lowest levels since the start of the pandemic.
“We’ve got a lot of congestion of demand versus supply, and what tends to happen is that it burns itself out and just waiting for what level that’s going to happen,” said Steven Ricchiuto, US chief economist, Mizuho Securities.