The housing shortage can only be counteracted by building more apartments. The US certainly needs more houses to …
The housing shortage can only be counteracted by building more apartments.
The US certainly needs more homes to keep up with demand. Many buyers simply cannot find a home to buy, or they compete with so many others that it has become the norm to lose in a bidding war. The National Association of Realtors reports that existing home sales were down 0.9% in May compared to May 2020, while the average home price increased 23.6% year over year.
Unfortunately, builders cannot complete new properties fast enough. A year of supply chain problems, rising material costs, and the coronavirus pandemic that threatens health and employment opportunities for construction workers have slowed the pace of construction.
The housing industry appears to have performed well in many ways over the past few months, but the problems remain. Here’s what’s keeping the housing industry in check, as well as opportunities for home buyers considering new builds and what experts expect in the future.
[READ: What to Expect From the Housing Market in 2021.]
What is causing construction delays?
2020 began with promising housing prospects, with permits and signs of easing long-term housing shortages to create a more balanced market between buyers and sellers.
Of course, the coronavirus pandemic, which has resulted in mass shutdowns of work processes – including construction in many parts of the US – has slowed everything down.
In addition, the global pandemic has created inconsistencies in world trade. The US public is starting to feel cautiously optimistic that an end to the pandemic is in sight more than mid-2021, and this is certainly reflected in construction too. “There’s a sense of relief in the industry that we’ve got through this extraordinarily difficult period,” says Barry LePatner, attorney and founder of LePatner & Associates, CEO of Insights +, a construction company specializing in strategic planning and consulting, and the Author of Too Big to Fall: America’s Failing Infrastructure and the Way Forward.
Nevertheless, remaining hurdles plague the construction business. Delays in delivery have meant that forecast completion dates for construction projects have passed and material costs have skyrocketed.
On May 7, the price of wood hit an all-time high of $ 1,691.73 per thousand board feet, according to Trading Economics. Pre-pandemic timber prices were typically around $ 450 per thousand board feet.
Prices have come down since that peak to the industry’s relief. On July 20, the price of wood was $ 540.85 per thousand board feet, reports Trading Economics. However, the high cost of materials has not yet been resolved.
“That has not necessarily led to lower costs for the client,” says Robert Dietz, chief economist and senior vice president for economy and housing policy at the National Association of Building Owners. Other common house building materials, such as Oriented Strand Board, are seeing price increases.
“We still have a way to go before the supply chain heals,” says LePatner.
Material costs and delivery delays are not the only problem. “As the supply chain problems are gradually resolving and improving somewhat, we should expect that access to labor will be the new greatest challenge,” says Dietz.
A shortage of construction workers has existed since the Great Recession when many in the construction industry dropped out permanently due to a lack of available work. However, the trend towards university degrees and away from vocational schools and construction-related training has since reduced the need for skilled workers for housing construction.
“This is probably the biggest threat to the industry going forward,” says LePatner. There is no guaranteed solution to the shortage of construction workers. Wages will likely have to rise to attract new workers, which in turn will drive up the total cost of new construction.
[Read: 10 Things You Need to Know When Buying a New Construction Home]
Can homebuyers still get a new home?
The number of new home purchases has certainly slowed in the face of struggles in the construction industry, although it is not impossible for buyers to find a new home to buy.
In many cases, home builders simply had to slow their schedules and reduce the number of concurrent deals to avoid a flood of incomplete homes with impatient owners. “They’re rationing how many houses they even make available for a down payment,” says Nick Bailey, President of Re / Max.
You may be hoping to get around buying a home entirely by buying vacant land and building a custom home instead. You will avoid competition among home buyers for existing or new homes, but unfortunately you will not be able to avoid the construction-related issues that can drag out the process and increase the total cost.
Scott Lindner, national sales director at TD Bank Mortgage, says home buyers who want to build a home instead must budget for additional costs, especially if they want to finance long-term with a home loan or home loan. “Consumers have to put money aside – probably 15 to 20% of the (total cost) for overages,” says Lindner.
Estimated costs are more important than ever, and you want to work with a contractor you can trust to anticipate the expected additional costs and barriers. “The consumers really have to urge the builder to feel really comfortable with the costs (and) that the builder doesn’t underestimate the costs at all,” says Lindner.
After all, material delays and high costs can create major problems, not just with moving into your new home, but also because these factors can create tension with your lender, who may only be flexible to a certain extent. Lindner emphasizes that you should be less picky if the cabinets you want or your ideal flooring are not available for months. “If that is not possible for six or nine months, consumers have to think about Option A and Option B and sometimes even Option C to move their project forward,” says Lindner.
[Read: What Are Your Rights When It Comes to Nearby Construction?]
Can building still solve the housing shortage?
The outlook for housing is positive, and in many ways it is simply a matter of giving the construction industry enough time to recover from recent setbacks and prepare for new ones before they can get back up.
Until the demand for housing subsides, however, a certain amount of catching-up must be expected. “We had about a decade of underbuilding that left the market with just over a million apartments,” says Dietz. He notes that the estimated scarcity varies depending on the source: while the NAHB estimates the shortage at around 1 million apartments, the NAR estimates a shortage of around 5.5 million apartments.
In June there were nearly 1.6 million building permits for private housing units in the US, according to the US Census Bureau, an increase of 23.3% from June 2020. In May the figure was even more at 1.68 million. While it will take some time for these permits to be converted into ready-to-move-in apartments, they are a sign of positive steps being taken.
“I think next year will be a bright spot for the industry,” says Bailey. Construction is progressing seasonally, and Bailey says he is encouraged by the permits that there will be a strong supply of new homes in the near future.
LePatner also points to 2022 as a good year of construction, though there will be some growing pains as builders, home buyers, and real estate professionals adjust. “It’s a fit-and-start process by the end of this year,” he says.
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What’s next for the new home housing market in 2021 originally appeared on usnews.com