2022 Outlook: New Construction
The year is quickly coming to an end, but that doesn’t mean the craziness of the housing market will end once we flip the calendar to 2022.
Economists and housing experts say they’ve seen signs of a cooling market in November which is good news for home buyers who are struggling in this seller’s market. But the long-term forecast has come into better focus in just the past few weeks. It’s predicted by many that future home prices will not surge as high as they did in 2021, but they will likely continue to rise — projected to climb by another 16 percent throughout 2022.
So how has new home construction fared over the past year, and what does the future hold? Builders across the country continue to see strong demand from potential buyers, thanks to record low resale inventory (in September inventory decreased by 22.2 percent over the past year — slightly lower than the 25.8 percent drop in August).
New Construction Update
Many buyers are seeing new home construction as the solution to their home buying problems. And in many scenarios, it is the best solution for their housing needs. We have taken on many new clients in recent months as a result of buyer frustration with low home inventory and back-to-back bidding wars. Some of the buyers we’ve been working with will get the keys to their new homes in just a few weeks.
But it goes without saying that new home construction has dealt with its share of challenges in the face of today’s market — from material and labor shortages to price increases and shipping delays.
Andy Toms, our Director of Production, shares his expert insights below on the biggest obstacles experienced in recent months and what he and his team have done on the production side of the business to get buyers into their new homes sooner versus later.
Material Shortages
Raw material availability is driving some manufacturers to suspend production of some products and put the ones that they are producing on allocation to their distributors. This creates an even bigger supply and demand imbalance that is also adding to price increases. At the same time, we have seen very little relief on product lead times; and in some cases it is still 10 times longer than before the pandemic.
Price Increases
We have seen some relief in lumber pricing. However, we are still experiencing material increases on many of the products that go into the construction of a new home — products such as windows, doors, materials with resins/plastics (PVC pipe, fiberglass bathware) and aluminum to name a few.
Labor Shortages
The labor shortage has affected both the manufacturers’ ability to produce product and ship it. This continues to be a problem locally as well . . . trades with a heavy workload but not enough employees to get it all done and stay on schedule.
Trucking/Delivery
This continues to be a major concern. With many products and materials sitting in cargo ships, manufacturers have moved to flying jets around the world to pick up the parts/materials they need to produce their product. However, this is very costly and adds to the pressure of increased manufacturing costs. The current shipping situation is a major contributor to the long lead times that we are experiencing for many products.
The Pricing Pivot
Current market conditions continue to impact new home construction pricing. The challenges shared by Tom are driving much of the instability, and this adds another layer of complexity when launching new neighborhoods.
The reality is this — the home price today may not be the home price tomorrow. To address this fluidity, some builders are changing the way new neighborhoods are rolled out to prospective buyers.
Home plans and pricing are historically released to the public before a neighborhood is open for business. Today plans may be released, but pricing may not be shared until closer to the sales window to avoid buyer frustration with changing costs.
Rolling out a new neighborhood without all the typical information can be frustrating to buyers. It’s understandable as they’re anxious for all the details. The key is for builders and agents to be completely transparent with buyers. Explain the reasons for the price fluctuations and why it’s especially challenging during these times to put a firm price tag on many homes and new neighborhoods.
Feature Flexibility
Another thing for new construction buyers and agents to be aware of in this unprecedented market is product availability. Again, clear communication and setting the buyer’s expectations are keys to avoiding confusion during the home building process.
Product availability could, at times, affect what a builder can offer a buyer for their home features. If a product such as windows, appliances, plumbing or lighting fixtures is delayed due to supply chain issues, a builder is authorized, per the builder/buyer contract, to make a product substitution as long as the replacement product is of equal value and performance.
Consultants at our Design Studio are in-the-know regarding any product availability challenges. Their job is to help guide buyers with selections that will not only best fit their lifestyle and personal taste, but also will not delay the construction timeline.
In It Together
No matter what 2022 holds for us, there will be ups and downs, successes and defeats. But working together with buyers to make their home buying dream a reality — and make the experience as smooth and seamless as possible — should always be the priority.
Bill Patrick, EG Stoltzfus Homes
Facts, opinions and information expressed in the Closing Comments Blog represent the work of the author and are believed to be accurate, but are not guaranteed. The Lancaster County Association of Realtors® is not liable for any potential errors, omissions or outdated information. If errors are noted within a post, please notify the Association. Posts represent the author’s opinion and are not necessarily the opinion of the Association.
