House prices have skyrocketed over the past year as imbalances between supply and demand have grown in the housing market. As current owners are reluctant to sell their homes in today’s market and Baby boomers are aging in place, builders must compensate for the drop in supply with new construction. However, they face significant obstacles.
“There is an imbalance between supply and demand in the housing market, and we estimate that there are around 3.8 million properties missing across the country – figures are debated but somewhere in that range – and it influences pricing in a very big way,” Freddie Mac CEO Michael DeVito said. “Prices are going up year on year – around 20% – can that be sustainable? We’re paying close attention to that.”
Homebuilders continue to face supply chain issues, which are hampering the speed of building new homes and driving price increases.
“The supply chain is going to be a major problem if we don’t fix it very soon,” said Jerry Howard, CEO of the National Association of Home Builders (NAHB). interview on Varney & Co. Monday. “Everything from lumber to drywall to concrete to appliances – three, four month delays because the product is all on the boats in ports across the country. It’s a impending crisis.”
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Housing demand continues to rise
Despite intense competition for home sales and rising housing costs, demand for homeownership continues to rise, in part due to low mortgage interest rates.
“It’s the demand that totally drives him,” Howard said. “There’s still huge consumer demand and the smaller towns and ex-urban areas we’re seeing a lot of traffic and a lot of people are interested.”
But homebuilders cannot meet this demand for new homes and entry-level homes when they run out of materials. Howard explained that the supply problems started with a shortage of wood and high prices, but supply chain disruptions spread quickly thereafter.
“It started as a wood problem,” he said. “Now he’s moved on to concrete, drywall, all kinds of appliances. Even some of our guys are reporting that they’re having trouble getting some of the tools they want to buy.”
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Supply shortages are not a silver bullet
Howard stressed that time is running out and a solution must be found quickly to allow more homes to be built. He added that the lack of supply continues to push up house prices.
“Time is money, and the longer it takes, the more it will increase the price of the house,” he said in the interview. “Right now, we’re looking at at least a few thousand dollars, depending on where you are and what products you’re talking about. Housing affordability is an issue, as you said in the previous rental market report, and now it’s becoming an issue in the first-time homebuyer market. This does not bode well for housing or the economy.
However, other specialists in the the homebuilding industry says the problem cannot be fixed quickly. First American Financial Corp. Deputy Chief Economist Odeta Kushi explained that the housing inventory problem is not new and will take time to resolve amid labor shortages long-term work.
“The construction industry was an older industry that lost a lot of workers who retired as a result of the crisis,” Kushi said. “And there’s been kind of a trend of getting that four-year degree, of getting away from trades, of wanting to do more office work rather than construction work. Generally speaking, that trend has led less construction workers than we would like in the industry. This is the thing we need – more supply – and it’s tiring to say it again and again, and it’s also the only something we can’t do overnight. It will take time to make up for the decade-long lack of supply.”
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