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New-Home Market Was Broken Before Pandemic

Builders once kept up with demand, but Great Recession cutbacks and worker losses created major problems exacerbated by new pandemic-created challenges.

NEW YORK – Almost every real estate economist has said for years that “We need more new homes” to end problems such as rising home prices and housing for low-incomes Americans.

However, the housing market continues to face low inventory and high home prices, and experts continue to hope that home builders can increase supply. The lack of new-home inventory doesn’t just impact the new-home industry – it also pushes more buyers into the existing-inventory home market.

But builders haven’t been able to keep up. They point to supply chain disruptions. Lennar says those disruptions have slowed quarterly production cycles by two weeks for two consecutive quarters.

“The ability to actually build and deliver homes has been slowed by the supply chain that is all but broken, by the workforce that is short in supply, and the intense competition for scarce entitled land assets. Therefore, the supply of homes has remained quite limited and is not prone to overbuilding,” according to Lennar Executive Chairman Stuart Miller.

Similar reports were delivered by Texas-based builder D.R. Horton and Georgia-based PulteGroup to their investors. Their reports acknowledged the challenge of skyrocketing lumber costs, weakened labor forces, and issues sourcing building materials and appliances.

“Just about every housing analyst and housing economist right now agrees that we need to add more housing, and it’s not just single-family housing – we need to build more townhouses, more missing middle duplex type housing, and more apartments,” says National Association of Home Builders Chief Economist Robert Dietz. “There’s no single scalable solution that’s going to solve the problem. It’s going to require years to fix the problem, and buyers will be priced out in the process.”

Redfin Deputy Chief Economist Taylor Marr says inflated lumber costs and supply chain issues have increased the cost of building a home by 22% over the past year alone. Dietz also points to the costs associated with inflation, which reached 7.9% in February, making it harder for privately owned home builders to secure the loans they need to withstand higher material costs and the financial risk that comes with increasing completion timelines.

Source: Inman (03/28/22) McPherson, Marian

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