Home prices have skyrocketed over the past year as supply and demand imbalances grow in the housing market. As current homeowners hesitate to sell their homes in today’s market and Baby Boomers age in place, homebuilders must make up for the decrease in supply through new homes. However, they are facing significant barriers.
"There's a supply/demand imbalance in the housing market, and we put the numbers somewhere around 2.8 million properties short around the country – numbers are debated but somewhere in that range – and that is influencing prices in a very material way," Freddie Mac CEO Michael DeVito said. "Prices up year over year – around 20% – can that be sustainable? We're paying really careful attention to that."
Homebuilders continue to face supply chain issues, hindering the speed of new homes construction and creating price increases.
"The supply chain is going to be a major problem if we don’t get it fixed very soon," Jerry Howard, National Association of Home Builders (NAHB) CEO, said in an interview on Varney & Co. Monday. "Everything from lumber to drywall to concrete to appliances - three, four months delays as the product all sits on the boats in the ports all across the country. It’s a looming crisis."
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Demand for homes continues to surge
Despite the intense competition for home sales and rising housing costs, demand for homeownership continues to increase, driven in part by low mortgage interest rates.
"It’s demand that’s totally driving it," Howard said. "There’s still huge consumer demand and small cities and ex-urban areas that we’re seeing a great deal of traffic and a lot of people are interested."
But home builders cannot meet that demand for new housing stock and entry-level homes when they're short on materials. Howard explained that the supply issues began as a lumber shortage and high prices, but supply chain disruptions quickly spread thereafter.
"It started out as a lumber problem," he said. "Now it’s gone to concrete, to drywall, to every kind of appliance. 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 aren’t a quick fix
Howard stressed that time is of the essence and that a solution must be found soon to enable more homes to be built. He added that the lack of supply continues to push home prices up.
"Time is money, and the longer it takes, the more it will add to 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 a problem, as you said on the previous report on the rental market, and now it’s getting to be a problem in the first-time homebuyer market. That doesn’t bode well for housing or the economy."
However, other experts in the homebuilding industry say the problem can’t be fixed quickly. First American Financial Corp. Deputy Chief Economist Odeta Kushi explained the housing inventory issue is not new, and will take time to fix amid long-term labor shortages.
"The construction industry was an older industry that lost a lot of workers that retired in the aftermath of the crisis," Kushi said. "And there’s kind of been a trend more towards getting that four-year degree, moving away from trades, wanting to do more in-office work rather than construction work. Broadly speaking, that trend has led to fewer construction workers than we would like in the industry. That is the thing we need – more supply – and it’s tiring to say it over and over, and it’s also the one thing that we can’t do overnight. It’ll take some time to make up for the decade-long lack of supply."
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