
Supply and Demand Problem Plaguing New Construction Builders
Many real estate economists have called on new home builders to ramp up production to help relieve the shortage of inventory of homes for sale throughout the United States. The added inventory would no doubt aid buyers in their search to secure their dream home, while also helping to ease price increases throughout the country.
Unfortunately for builders, there are many forces that are making it difficult for them to do just that!
Last week at the National Association of Real Estate Editors 51st Annual Conference, CoreLogic’s Chief Economist Frank Nothaft broke down the 4 ‘L’s of New Home Construction: Lots, Labor, Lumber, and Lending.
Supply and Demand Problem Plaguing New Construction Builders
The concept of supply and demand is ripe in the new home construction industry. The four ‘L’s of new home construction are each suffering a supply problem, and with that comes added costs. Let’s break it down!
Lots – There is a shortage of land near metros at an affordable price, causing builders to move farther and farther away from cities to keep costs down. This isn’t always an attractive option for those who want to stay close to work.
Labor – The Great Recession forced many skilled construction and trade workers to find other sources of income once their jobs were lost at the time of the crash. Even though the overall housing market has recovered, these workers have not returned. Those who remain are starting to age out and retire, causing even more of a shortage and additional costs.
Lumber – The cost to build a new home is directly tied to the cost of the lot and the cost of the supplies needed to build the home. Lumber costs continue to escalate due to policies restricting the importation of Canadian lumber, making larger luxury homes an attractive option to recoup costs when selling, rather than building smaller single-family homes and making less profit.
Below is a graph showing the increase in cost of 1,000 board feet of framing lumber.
Year-over-year, lumber costs are up 13% after reaching a high of $433 in the second week of April.
Lending – During the Great Recession, many small community banks were forced to close their doors. These banks were a great source of capital and lending for builders looking to borrow money at a low interest rate in the community in which they were building. Tougher lending standards have made borrowing funds more expensive and more difficult for builders.
Supply and Demand Problem Plaguing New Construction Builders
Bottom Line
Additional costs across all 4 ‘L’s have made building luxury properties more attractive to builders as they are able to make a larger margin with the higher sales price. The move to scale down to starter and trade up homes to help with supply will mean any additional costs are absorbed by the builders unless the supply of the 4 ‘L’s can increase!
[gravityform id=”15″ title=”true” description=”true”]
Call Us Now To Sell Your Home…
Office: 909.985.9392 or Text Us: 714.657.6634
Housing Inventory Hits 30-Year Low
Spring is traditionally the busiest season for real estate. Buyers, experiencing cabin fever all winter, emerge like flowers through the snow in search of their dream home.
93.9% Of Homes in The US Have Positive Equity
The outlook for 2017 remains positive as well, as an additional 600 thousand properties will regain equity if home prices rise another 5% this year.
20 Tips for Preparing Your House for Sale
Selling your home is a matter of competition in today’s real estate. You’re competing with other like minded sellers all fighting for the right offer at the right from an eager buyer.
Do Your Future Plans Include a Move? What’s Stopping You from Selling Now?
Do Your Future Plans Include a Move? What’s Stopping You from Selling Now? Are you an empty-nester? Do you want to retire where you are, or does a vacation
California Prop 60 and Prop 90 Property Tax Transfer Rates
California Prop 60 and Prop 90 Property Tax Transfer Rates
Home Buyer Demand Continues To Outpace Homes For Sale
Home Buyer Demand Continues To Outpace Homes For Sale. The price of any item is determined by the supply of that item, as well as the market demand.
Inventory Drops Again, Sales Slow
Inventory Drops Again, Sales Slow. Inventory of existing homes for sale dropped to a 4.3-month supply, marking the 25th month in a row of declines.
Americans Believe Real Estate is Best Long Term Investment
Americans who have money to set aside for the next 10 years would rather invest in real estate than any other type of investment.
11 Tips Sellers Need When The For Sale Sign Goes Up
11 Tips Sellers Need When The For Sale Sign Goes Up 11 Tips Sellers Need When The For Sale Sign Goes Up. The sellers have decluttered, painted, made repairs and spiffed up the landscaping. The curb appeal is at its best. After the long process of getting...
3 Tips to Succeed in Today’s Real Estate Market
3 Tips to Succeed in Today's Real Estate Market Here are 3 Tips to Succeed in Today's Real Estate Market. In today’s highly competitive real estate market, where inventory levels are not keeping up with the constant stream of buyer demand, there are steps...
Thinking of Selling? You Should Act NOW While Inventory Is Low
Thinking of Selling? You Should Act NOW While Inventory Is Low If you thought about selling your house this year, now more than ever may be the time to do it! The inventory of homes for sale is well below historic norms and buyer demand is skyrocketing. We...
3 Questions to Ask Before You Buy Your Dream Home
3 Questions to Ask Before You Buy Your Dream Home If you are debating purchasing a home right now, you are probably getting a lot of advice. Though your friends and family will have your best interests at heart, they may not be fully aware of your needs...
5 Benefits To Homeownership That Should Be At The Top Of Your List
5 Benefits To Homeownership That Should Be At The Top Of Your List 5 Benefits To Homeownership That Should Be At The Top Of Your List. Recently, Freddie Mac reported on the benefits of homeownership. According to their report, here are the five benefits...
Homeowners: Your Home Must Be Sold TWICE
Homeowners: Your Home Must Be Sold TWICE - Price To Sell In today’s housing market, where supply is very low and demand is very high, home values are increasing rapidly. Many experts are projecting that home values could appreciate by another 5%+ over the...
How Record Low Interest Rates Impact Your Home Purchasing Power
How Record Low Interest Rates Impact Your Home Purchasing Power According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.96%. This is still near record lows in comparison to...
5 Reasons Why You Should Not For Sale By Owner
5 Reasons Why You Should Not For Sale By Owner In today’s market, with home prices rising and a lack of inventory, some homeowners may consider trying to sell their homes on their own, known in the industry as a For Sale by Owner (FSBO). There are several...
Check This Out – Median Days on the Market Drops to 27
Check This Out - Median Days on the Market Drops to 27 Some Highlights: The National Association of REALTORS® surveyed their members for their monthly Confidence Index. The REALTORS® Confidence Index is a key indicator of housing market strength based on a...
Harvard Study: Epic Housing Shortage Being Reported
Harvard Study: Epic Housing Shortage Being Reported A Harvard study shows an epic housing shortage being reported. The Joint Center of Housing Studies (JCHS) at Harvard University recently released their 2017 State of the Nation’s Housing Study, and a...