Home Builders Just Can’t Keep Up

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Key Highlights

  • US builders on pace to start construction on 1.1M single-family homes this year, the most since 2006
  • Still below peak of 1.7M new homes in 2005

Home Builders Risk Losing Business

White-hot housing demand so out-strips supply that many new-home construction builders are on the cusp of losing business.  According to an analysis by Freddie Mac ,the housing market needs 3.8M single-family homes to meet current demand, an increase of +52% than in 2018.
The National Association of Home Builders Association (NAHB) indicated that homebuilders need to build 1.2M homes this year to meet current demand.  The industry is on track to build 1.1M homes instead, a higher number of newly constructed single-family homes since 2006.

What’s the Hold-Up?

Home prices have jumped +11.3% nationwide over the last year, according to CoreLogic.  Lumber prices and other raw materials have more than doubled over the past year and are continuing upward spirals. Add to all that a short supply of qualified labor and increasing labor costs/demands.

Also of note is where new construction is happening currently. Think the mountains of Pennsylvania to “one-stoplight” towns well beyond Houston and California’s San Joaquin Valley.

Why There?

Available and still somewhat affordable land with more flexible building codes.

New Home construction in small cities and suburban areas has jumped +15%, according to the NHBA.  This 15% increase in new home construction compares to the less than 10% in big cities.

John Burns, CEO of john Burns Real Estate Consulting,said, “People can move to where it’s more affordable. This is a permanent game changer in the housing industry.”

Pandemic Accelerated Already Ongoing Shift to Secondary Cities, Suburbs Exurbs and Rural Areas

Growth on urban peripheries was already happening pre-pandemic and then BOOM…affordability concerns and remote working kicked in.

Places such as Lathrop CA, located between Alameda and San Joaquin Counties, has seen its farmland and open fields replaced by warehouses and newly constructed subdivisions for priced-out workers in Silicon Valley and San Francisco.

Livermore, on the east side of California’s Alameda County, is seeing, according to Zillow, a typical home valley near $1M.  Just over the hill, towns like Tracy, Lathrop, and Manteca are seeing typical home prices between $500,000 and $600,000.

The National Bureau of Economic Research estimates that “…20% of full workdays will be supplied from home after the pandemic ends, compared with just 5% before.”

If this WFH statistic holds up, even more single-family homebuilders will fall behind housing demand.

“If GOOGLE Moves to Cleveland…”

Adam Ozimek, chief economist with Upwork, said, “If Google moves to Cleveland, that’s great, but if one Googler moves to Cleveland, that’s also great.”

New Home Lotteries

Because housing demand is off the charts everywhere, new homebuilders, loathe to allowing bidding wars, are asking buyers to pay sticker prices PLUS participate in lotteries to narrow down demand.

Outfits such as Kipler Homes have been having live drawings on Zoom to determine “winners” of new homes now available for purchase.

What happens to all those many more “losers” in those live drawings or lotteries?  And what happens to all that additional business that homebuilders could have had if only they had been able to build as much housing supply as the consumer market wanted?

 

Thanks to The New York Times, Zillow, Freddie Mac, the National Association of Home Builders, the National Bureau of Economic Research, CoreLogic, and John Burns Real Estate Consulting.

 

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