Already contending with cost pressures on the labor and lots front, a new fissure has introduced worries over a spike in materials–particularly lumber–expenses. As trade relations with other nations turn into hardball renegotiations, the challenge now and for the coming months for builders will to fight off the potentially negative impact of costs coming unglued.
Softwood lumber from Canada is off the rails, price-wise. That’s not an insignificant matter, when framing materials and labor comprise around 18% or more of new home’s direct input costs. Is the Canada imbroglio a symptom? A harbinger of border and global trade skirmishes to come? We’ll say this much. Materials cost risk was not high up there as a source of anxiety when many builders projected their most important challenge areas for 2017, but there you go.
Source: NAHB "Cost of Constructing a Home"
The consequence, then, is that builders have to try to pass along higher prices–even as they endure completion cycle uncertainty due to labor capacity ups and downs–and, of course, risk profit margins.
This is not a happy scenario, especially when many builders are in the process of bringing online hundreds of new communities aimed to meet the lower price tolerance points of the less well-heeled buyers of the young-adult cohort, where margins are tighter by nature, and where volume and cost and productivity disciplines are the bedrock of profitability.
Price elasticity based on three ever-more-daunting cost fronts–labor, lots, and materials–is not the game home builders thought they were going to have to play, but that’s increasingly the challenge, as demand shows up seeking affordable alternatives to existing home supply within range of work centers.
A new Redfin analysis here heat-maps home buyer prospects’ searches–across the digital real estate landscape–for affordability and work-housing balance. Here, Redfin analyst Taylor Marr offers top line insights from the online broker’s dive into its own site’s search data.
In an analysis of a sample of nearly one million Redfin.com users searching for homes across 75 metro areas in the first three months of 2017, we found that one in five (19.8%) searched mostly1 for homes outside their home metro2. Among them, about half searched exclusively in other metros. Three trends dominated the migration patterns seen in Redfin.com user searches last quarter:
- Movement of Bay Area residents to more affordable metro areas dominated the nation’s migration patterns in the first quarter.
- Metro areas in the South attracted migrants from the coasts.
- Chicago, Boston and Seattle had perhaps the most dedicated residents, with more than nine out of 10 local users planning to stay in the area.
By many metrics, homeo wnership and even new homeo wnership are part of America’s affordable housing solution. It’s just that with cost pressure building on a trifecta of fronts–labor, lots, and now materials, thanks to new policy challenges impacting international trade and the cost of foreign goods–builders worry that prices they’re going to have to try to pass off to home buyers will flirt with affordability peril, or profitability risk.
Stay tuned.
