After 49 years in the Longview-area new home construction business, the pressures of the current market have Tom Davis considering shifting his focus to large home remodeling projects.
That work relies more on labor and less on commodities, he said. It’s those commodities — a variety of building materials — that are complicating new home construction with higher prices and delays or shortages in product availability.
It’s been the “strangest year,” Davis said, pointing to multiple examples of how increased prices and shortages have affected home construction. In September, he paid $8.20 for a sheet of plywood decking. Knowing prices had gone up, he said he later priced a home at $22 per sheet, but then prices increased again to $32.50 per sheet.
This past week, Bloomberg reported lumber futures hit a record high of more than $1,500, with a couple of wood products companies reporting selling out of some products. And in April, a news report of a lumberyard selling wood to a supplier, instead of vice versa, had the industry worried about the potential for prices to increase even more.
“These large increases began in the summer of 2020,” said Adam Weatherly, manager of McCoy’s Building Supply in Longview. “There were several factors influencing these increases, one of those being the impact of the COVID-19 pandemic on manufacturers and mills. Many mills lost production capacity due to not being able to operate at 100% because of the restrictions around social distancing.
“The other main factor was the significant increase in both consumer demand for lumber products as many people were stuck at home and putting in new decks, fences, pergolas, etc. as well as increased demand for new home construction. The reduced production coupled with the increased demand pushed lumber into a supply-demand imbalance that continues still today.”
Shortages of raw materials also are affecting product availability and pricing, including resin use to make oriented strand board, or OSB, which is used in place of plywood in building home floors and walls. The effect of February’s winter storm on Texas also played a role in disrupting the supply chain.
“The largest and most impactful increase have been on panel products, specifically OSB sheathing. In just over one year, OSB costs have increased by 520%,” Weatherly said. “Resin shortages have impacted mills’ ability to produce at 100% capacity, but overall demand is so high throughout North America currently that there just not enough supply to sustain the increased demand.”
High prices and strains on product availability hit at a time of high demand. The U.S. Census Bureau reported that in March, across the country, building permits for privately owned housing units climbed to a seasonally adjusted rate of 1,766,000. That’s 2.7% more than in February — but 30.2 percent more than in March 2020. Single-family housing starts were up 15.3% in March compared with February.
The Texas A&M Texas Real Estate Center reported multiple months in 2020 when the number of new single-family home construction permits in the Longview Metropolitan Statistical Area increased by double-or triple-digit percentages. That was followed by decreases in the fall and winter months, but permits were up 40% in March.
The National Association of Home Builders reported in March that the number of single-family housing starts averaged 1.2 million during the previous three months, which the association said reflect levels not seen since 2006.
The National Association of Home Builders’ statistics were in a letter the association penned to Commerce Secretary Gina M. Raimondo asking for an examination of the lumber supply chain. She has said she will make the issue a priority.
“We write to urge your immediate attention to an issue threatening the economic recovery and housing affordability: the price of lumber,” the association’s letter said. “We respectfully request that your office examine the lumber supply chain, identify the causes for high prices and supply constraints, and seek immediate remedies that will increase production.
“Lumber prices have nearly tripled, and oriented strand board (OSB) prices are up more than 250% since last spring. These spikes have caused the cost of building an average new single-family home to increase by more than $24,000 since mid-April 2020, according to the National Association of Home Builders’ standard estimates of lumber used to build the average home.”
Michael Alston of East Texas Homes said the increased prices of materials have raised the cost of homes to the point that his company can’t build at the entry level prices he started with.
“You cannot afford to build that house anymore. It’s impossible to keep those prices down,” he said. Ten or 12 years ago, he built 1,400-square-foot homes in the $110,000 to $115,000 price range. Today, that house costs $145,000 to $150,000.
“It’s very significant,” Alston said. “We certainly have been and still are focused on affordable housing. However, because of the market change the definition of affordable housing has certainly changed.”
Low interest rates are helping drive the high demand, he said.
“As long as rates stay low, there still will be rates for first-time home buyers to enter the market,” Alston said. “The problem is we don’t see an end to it. It’s a conundrum. You don’t want to stop building because there’s a high demand. People are moving into our community.”
Davis worried, though that rising prices, driven in part by people moving into Texas from other states such as California, Arizona and New York, where lot and homes prices are higher, will make it difficult for local residents of average income to buy homes.
If builders stop constructing homes, people moving to Texas will look for new homes will move to another community, Alston said.
“We’re satisfied with the lower margins, but we haven’t cut the volume back,” Alston said.
Weatherly said what he’s seen is builders adjusting to the higher costs.
“Building materials trend up and down, so the overwhelming opinion was that costs would eventually decrease. Builders kept building due to the high demand,” Weatherly said. “But costs did not decrease. They kept increasing, and here we are in May 2021 and costs continue to go up due to many factors. The demand for building materials tells me builders are living with increased cost because they have to continue doing what they do for a living.”