Slowing Sales
Builders can keep raising prices to stay ahead of costs, to a point, said John Burns, an Irvine-based real estate consultant. But some are raising them by as much as 2% a month, he said.
“If that went on for two or three years, we’d be very concerned about affordability,” Burns said. “Every time prices go up, it’s great for homeowners and bad for the renter who aspires to be a homeowner.”
Stocks of homebuilders have climbed in recent months as orders for new homes surge. The looming issue is that the demand for housing is outstripping supply at a time when construction has gotten more expensive.
Lennar Corp., the biggest builder by revenue, said it’s intentionally limiting sales to homes already under construction to avoid buying lumber at today’s high prices. The company says it’s trying to be patient, betting it can continue to hike prices to help offset the higher costs.
“Sales could have been stronger with a singular focus on volume,” Stuart Miller, the company’s chairman, said on an Sept. 15 earnings call. “It is challenging at best to materially ramp production in this labor-constrained market, and it’s even more challenging to replace entitled land.”
Wood Shortage
Alan Gerbus, a second-generation Cincinnati custom builder, is already in the hole on a house before he’s even started. He submitted a contract to his buyer in late June for an $800,000 house but his costs just for wood products jumped $25,000 by the time it was signed 40 days later.
“The lumber supplier said he can’t honor that price,” Gerbus said. “I’m praying for the lumber prices to start falling by the time I’m ready for delivery.”
Even if builders wanted to plow ahead, it’s hard to get wood these days. Robert Pool, co-owner of Main Street Lumber, a family business in Denison, Texas that sells products to builders, said he had to turn down some new customers early in the lumber supply crisis because he wanted to be sure he’d have wood for his existing customers.
His price for oriented strand board, widely used for roofs and siding, more than doubled to $24 a sheet in March, he said.
“It hurts when you have to tell somebody no,” he said.
--With assistance from Christopher Maloney.
This article was provided by Bloomberg News.