Shortages Cause Prices Increases
Recent posts have discussed how builders are facing widespread shortages of many building materials, and how materials prices for the same house have increased by 26 percent over the past year. Results from a follow-on NAHB survey show that builders have reacted to the shortages in a variety of ways, most commonly by raising the prices of their homes and pre-ordering materials.
The source for these results is the monthly survey for the NAHB/Wells Fargo Housing Market Index (HMI). The basic results establishing widespread shortages and rising costs came from the May 2021 HMI survey. The follow-on questions dealing with builder reactions were in included in June.
In particular, the June survey asked the HMI panel of single-family builders how their businesses have reacted to recent shortages and price increases in building materials. As previously noted, the most common reactions (cited by 62 and 59 percent of builders, respectively) were raising the prices on their homes frequently and pre-ordering materials, followed by price escalation clauses (45 percent), waiting until late in the construction process before listing spec homes (39 percent) and cost-plus pricing (32 percent). Only 2 percent indicated they had adopted none of the listed techniques for dealing with the shortages and rising cost of materials.
Some of the most dramatic increases over the past year involved lumber prices. So far, this has caused very few builders to switch away from traditional wood framing, although some are considering it. In particular, 17 percent are considering switching to steel, 16 percent to SIPs, 14 percent to ICFs, and 8 percent to concrete masonry.
Rising material costs are one of the reasons, along with the cost of regulation and ongoing shortage of construction labor, that buyers with relatively modest incomes are being squeezed out of the market for new homes.