Spring 2017: A Different Market
It’s just 24 months, but it seems like forever ago.
Then, home builders were pacing themselves. The clearest stream of demand for new homes was from the higher-end, discretionary buyer who was less anchored to the vicissitudes of mortgage lending practices of the moment, and more anchored to getting what he or she wanted in a new home.
Builders were “cadencing” their lot releases for sale. The demand was there, and the price tolerances home buyers had back then were elastic, even as developers, builders, architects, and landscape designers gave tremendous value on the home dollar. The buyer mostly said what, and the builder could say when and for how much. The fact that labor capacity was massively under-equipped to meet the demand mattered, but not so much, because buyers would wait for that dream home they’d already been waiting a full Recession to purchase.
The market’s real and growing stream of movers are the lower-margin buyers, in farther-reach peripheries, with more windshield time for supervisors, trades, etc., and more moving parts. It’s the market’s turn to “cadence” builders. Either they deliver on time, and on the mark as far as price, or, in most cases now, there’s a new-home community down the road a bit who’ll do the job quite nicely, thank you very much.
“We’re trying to push on prices where we can,” one big multi-market mid-Atlantic regional home building executive tells us. “But we want to keep the pace of sales going, so we’re focused more on volume. But that puts the pressure on margins, because we’re seeing costs go up.”
To fully understand the stresses on builders, particularly the ones who’ve activated or expanded their entry-level, lower-price tier community offerings, it may help to reflect on the importance to them of local real estate agents in their sales programs. Realtors® can be a very strong ally right now, especially while lower-priced, desirable resale inventory is so scarce.
on the market in days is at record velocity.
The typical home went under contract in 49 days, making it the fastest March for home selling on record since Redfin began tracking this data in 2010.
So, buyer demand is hot, and real estate agents are willing and able collaborators with new home community builders as long as the deals remain consistent and reliable when it comes to pricing and delivery times.
“We haven’t spent so much time and focus on start-to-completion cycle times in six or seven years as we are right now,” our senior executive builder tells us. “It’s really basic stuff of doing what we do, only doing it better and faster. Otherwise, we can’t get the margins we need.”
National Association of Home Builders economist David Logan notes that materials prices–particularly for lumber–are a definite and growing part of the margin challenge for builders. Logan writes:
For the second consecutive month, prices of softwood lumber, gypsum, ready-mix concrete, and OSB all increased, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics. The increases were led by softwood lumber and OSB.
The price of softwood lumber increased 2.3% in March after rising 4.8% in February. Softwood lumber prices have increased 7.2% over the first three months of 2017 and are up 12.9% since March 2016.
Two years ago, buyers had all the say on what would go in their homes, and builders were in the driver’s seat on when the homes would be delivered and for how much. Now, it’s reversed. To keep their margins, builders have the reins on what the home is, down to the square foot, but home buyers have much more of the leverage on when they’ll get it and how much they’ll pay.