According to Fox Business, homebuilders face further inflation headwinds as costs are increasing across the board. The co-COO of D.R. Horton, the nation’s largest homebuilder by market capitalization, Michael Murray, told Fox Business, “We’re seeing costs really increasing across the board.”
Homebuilders to Feel Effects of Inflation into 2022
Murray goes on to say the cost pressures will endure beyond this year and into 2022. Adding, “Even when we see perhaps some relief from lumber, as we move further into fiscal ’22, I think that will be offset by other cost increases.”
When it comes to lumber, the 316% increase in price since the beginning of 2020 is adding a whopping $36,000 to the cost of building a new home. The good news is random length lumber futures have since pulled back by 65%. However, because the inventory builders now have was purchased when prices were high, the price for lumber is still 60% higher than pre-pandemic levels.
While this is good news for lumber moving forward, the cost of other key materials builders are using has skyrocketed. This as material shortages continue to develop with increasing supply chain problems. Fox Business reports nationally the biggest impact is coming from engineered wood, windows, glass doors, paint, and vinyl siding.
In the case of paint shortage, Sherwin Williams CEO, John Morikis said material availability constraints and pricing inflation have worsened. Morikis adds, “We do not expect to see improved supply or lower raw material pricing in our fourth quarter as anticipated.”
Despite the material shortages and price increases, the impact is not affecting homebuilder confidence. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index builder confidence is up four points in October. Strong consumer demand is driving the demand in the real-estate sector.
Impact on Small Business Builders and Contractors
The impact of the price increases and supply shortages is much higher on small business builders and contractors. According to a report on the Minneapolis Fed site, builders have been passing the same increase in price, which has been 10 to 60%, to their customers. However, many of them passed on less for fear of losing their customers.
The report goes on to say demand and profits are down as small businesses face higher project prices. This includes both high material costs and rising labor costs. The result is a construction industry that is struggling with hiring, which is pushing customers to postpone and cancel projects.
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