Real Estate / 08.27.2020

KJK Homebuilder Update: August Highlights & Key Issues

By Matt Viola & Kyle Stroup

homebuildingIndustry metrics continue to signal that homebuilders are experiencing a strong summer. In order to continue the trend, homebuilders need to meet the demands of the market. As mortgage rates remain low and buyers place bids on homes sight unseen at record numbers, the number of consumers seeking mortgages to buy new-build homes was up 54.1% in June compared to last year and up 20% from May, 2020. While consumers continue to buy new-build homes, the supply begins to shrink and prices may increase, which could deter potential buyers. It is important that homebuilders continue to meet consumers’ demands.

Key Issues

Currently, there are a few key issues that stand in the way of homebuilders meeting demands. First, there is a general labor shortage in the homebuilding industry. While labor is already roughly a third of the cost of building a home, a shortage in labor will cause that number to increase, driving up new home prices. As the COVID-19 pandemic has displaced many workers, new job candidates will enter the construction industry. The potential employees will need to receive adequate training, but eventually the labor shortage should stabilize. In the meantime, it is important to attract new talents and retain the current talent your business has while keeping labor costs steady.

Additionally, the National Association of Home Builders (NAHB) recently sent letters to Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer and the U.S. Lumber Coalition’s executive director Zoltan van Heyningen to address the issues of rising material prices in the homebuilding industry. With the letters, NAHB is requesting meetings to discuss strategies to ease concerns for homebuilders regarding lumber import tariffs, domestic lumber production and supply chain shortages due to the pandemic.

In Ohio, lumber mills and other suppliers are struggling to meet homebuilders’ demands as well. The COVID-19 pandemic stopped industries in their tracks, and the homebuilding industry is no exception. However, as everything re-opens, there are restart lag times and infrequent COVID-19 related closures causing delays for suppliers to meet builders’ material needs. On the other hand, the data shows that consumers are ready to purchase new-build homes immediately. It is important to effectively navigate this gap in supply, otherwise homebuilders are losing sales.

If homebuilders can navigate these two issues to continue production, the industry’s upward trends should continue. The social distancing and quarantine procedures issued in the spring in many states, including Ohio, built up demand while mortgage rates remained low. As states opened back up, the industry experienced an uptick in demand. Now, as some states adjust their pandemic guidance, particularly Ohio, industry demand for new-build homes may stabilize to allow Ohio homebuilders to meet production demands while keeping costs level.

For assistance in navigating these and other issues, please contact Matt Viola at (216) 736-7253 or mtv@kjk.com or Kyle Stroup at (216) 736-7231 or kds@kjk.com.

 

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