NEWS
REAL ESTATE
A material matter
Product shortages, rising costs and soaring demand are making it difficult for homebuilders to keep pace. BY CAITIE BURKES SUPPLY PROBLEM: Though there are recent signs of easing, a shortage of lumber and other building materials has increased construction costs and delayed completion of new houses.
ISTOCK
MANCHAC HOMES owner Russell Alleman is arguably the busiest he’s ever been, with demand exceptionally high for the custom homes he builds in the Greater Baton Rouge market. The only problem: He can’t acquire the materials he needs to build each house. At least, not easily. In recent weeks, it’s been increasingly difficult for Alleman to source wood needed for roof decking. On one recent job, after phoning nearly every lumber supplier in his rolodex with no luck, he was prepared to drive to a lumber yard in Mississippi before a nearby supplier called Alleman at 5 a.m. to tell him a shipment had just arrived. “We ran over there at 6 a.m. to pick it up, and paid a fortune because we had to,” Alleman says. “We knew it wouldn’t be there long at all. If I had to guess, they probably sold out by lunch.” Alleman’s predicament—which also extends to windows, appliances and, considering the recent flooding, sheetrock—is one that’s familiar to many Baton Rougearea homebuilders, who are juggling these various supply chain issues and material cost increases in a time of unprecedented buyer demand. As a result, newly constructed homes are slower to come online, meaning the cost is being passed onto buyers. In East Baton Rouge Parish, for instance, the median price of a home rose from $209,000 in 2019 to $225,000 in 2020—a 7.6% uptick, according to the Greater Baton Rouge Association of Realtors. It’s a significant jump, given that between 2015 and 2019, the median home price in EBR increased just 1.4% on average. Alleman, who exclusively does cost-plus contracts, recently ran a transaction report for a client whose 3,600-square-foot, $1.1 million home would have been $64,000 cheaper had it been built just 16 months ago. He chalks up much of the 6% increase to
lumber prices—which, though they’re on the decline, remain 125% higher than the 15-year average. “Everyone knows that lumber has been ridiculous—there’s no sweeping this under the rug,” Alleman says. “I know lumber prices have finally started to go down, and I hope it stays that way.” Nonetheless, for potential homebuyers, the current supply problem only makes existing real estate all the more attractive. And they’re rushing to scoop up homes now rather than later, while interest rates remain historically low. The big question becomes: At what point does the single-family market stabilize in Baton Rouge, with sales prices cooling off and months supply returning to its usual six-month level? The apparent answer: Whenever interest rates jump, which the Fed has signaled will begin in 2023. A SUPPLY PROBLEM Simply put, demand for
housing is far outpacing supply, but there’s not much suppliers can do about it. Nowadays, local builders like Tyler Watson, who owns Distinctive Homes, often find themselves back-and-forth on the phone with suppliers, who are grappling with skeleton crews on top of shortages of building materials. While it used to take only two weeks for windows to arrive, Watson says that lately it has been averaging 12 weeks. “By that time, I’m normally putting cabinets in the house or painting and getting toward the finishing stages,” Watson says. “Three months is insane.” Additionally, appliances are four to five months out, he says, a phenomenon that has also helped slow the building process. A massive labor shortage doesn’t help, either. Watson’s subcontractors have limited crews, which Watson attributes to the extension of federal stimulus checks. Still, homes are being built. Already, in the first quarter of
2021, building permits throughout the Baton Rouge MSA were 30% higher compared to the first quarter of 2020, according to data provided by the Home Builders Association of Greater Baton Rouge. Over the past 12 months, building material costs have soared 26.1% across the U.S. on average, according to the National Association of Home Builders/ Wells Fargo Housing Market Index. The previous record was 6.1% in 2017. “It’s the same story here,” says Karen Zito, president and CEO of the HBA of GBR. “But construction loan appraisals struggle to reflect these extremely high-rising costs.” In June, the Housing Market Index showed that builder sentiment fell to its lowest level since August as construction costs pushed new home prices higher, making it more difficult for smaller builders—who account for two-thirds of the homebuilding market—to get loans. Appraisals have tended to lag where market prices and Daily-Report.com | BUSINESS REPORT, July 2021
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