[ad_1] homebuilder, housing starts, lumber, builders, builder confidence, construction Nate Noel’s problem isn’t a lack of work. It’s everything else. “I used to be able to get guys no problem, but now I am bidding on guys and having to raise pay in order to keep the guys I already have, which is just continually raising my costs,” said Noel, the president of HNN Builders, a custom homebuilder in the Chicago area. “I was working with a subcontractor on a project and the initial bid was $35,000 and the guy came back at $50,000 for the work because one of their guys left to start his own company and was trying to steal all their employees. So, they went from having to pay their guys $22 an hour to paying $30 an hour just to stay around.” Then there are the global supply chain issues, which have frustrated small-time homebuilders like Noel and the heads of publicly traded builders alike. “Every day is a roller coaster clause,” Noel said. “Lumber is of course a big one that people across the country saw, but we are seeing it everywhere from your spray foam insulation to your windows. Windows have gone up probably about 20% and usually they would be four to six weeks, but now it’s 12 to 14 weeks. So we are working on projects and when we got the quotes it was one cost and price, but when we go to order after getting the plans and permits finalized the price has gone up and now you’re like ‘I didn’t plan on three extra months to have to wait for windows.’ Luckily we did a lot of framing when lumber prices were about $3 for a four by eight, but last week it was about $9.” Owing to a historic inventory crunch, new construction is playing a more prominent role in the housing inventory landscape in decades. In December 2021, 34.1% of U.S. single family homes on the market were new builds, according to a report by Redfin. A year prior, only 25.4% of homes for sale were new construction. Currently, over 1.7 million homes are under construction, the highest level in decades. But homebuilders big and small continue to run into the same problems – building permits are on file, contracts with buyers are inked, but subcontractors often don’t show, and access to materials have led to longer build times and cost overruns. To boot, many homeowners are choosing to remodel their current home instead of buying a new one, making it even harder to get skilled labor and the materials they need. The National Association of Homebuilders/Royal Building Products Remodeling Index (RMI) finished 2021 with a strong reading of 83. During the first quarter of 2020 the index had a reading of 48. “We have been in a perpetually bare market for inventory for so long now that builders are having to fill the demand and I am not sure when it is going to end, which is crazy,” said Noel. The forest from the trusses In May of 2021, lumber prices soared to over $1,500 per thousand board feet of random lengths framing lumber. While prices declined throughout the spring and summer, dipping to under $400 in early September, they quickly rose again, coming in above $1,200 in mid-January 2022. Due to the volatility of commodity and labor prices, Noel instructs his clients to build a bigger “cushion” into their budget than they normally would. “The biggest lumber producers – and the lumber industry at large – has not really adjusted output over the past year and a half compared to what output was prior to the pandemic,” said David Logan, the director of the NAHB. “It is no secret that housing demand has been on a tear, rising higher and higher for a myriad of reasons, yet output in the sawmill industry has remained relatively flat, which is obviously contributing to higher prices. So, we have a fairly constant supply, but there is just unrelenting demand.” Like other sectors, the mill industry and the construction industry have been hit by labor shortages throughout the past two years. Although residential building construction employment is up 5.3% compared to its pre-COVID level, the NAHB estimates that the residential construction sector would need to add 740,000 workers a year just to keep pace with the industry’s growth, retirements and departures. There is some good news from the sawmill industry, which plays a pivotal role in the homebuilding ecosystem, as employment is back to the level it was pre-pandemic, in January 2020. “This is good news for the mill industry, but employment in that industry has been declining since the beginning of 2017, which coincidentally is when tariffs on Canadian lumber went into place,” Logan said. Tariffs on lumber imports from Canada were put in place in 2017 at the urging of the U.S. Lumber Coalition, which felt that U.S. lumber producers were being harmed by the amount of Canadian lumber being exported to the U.S. As of right now lumber tariffs are at 17.9%, but in late January the Commerce Department issued an administrative review to reduce the tariff to 11.64%. Homebuilders should not get too excited, however, as this is the third administrative review called on this issue, but the NAHB remains optimistic. The trade group is supportive of the Biden administration’s move to reduce duties from 17.99% to 11.64% on softwood lumber shipments coming in from Canada. But rising lumber prices and limited supply is just part of the homebuilding industry’s problem. According to Ali Wolf an economist at Zonda, nearly everything needed in the homebuilding process is facing some sort of delay and subsequent price increase. Prices for gypsum, a key component for drywall, rose 21% in 2021 according to the Producer Price Index from the U.S. Bureau of Labor Statistics and no new gypsum production is expected to come on board during 2022. Production of roofing materials is also not expected to increase this year.
