Issues Affecting New Housing Construction & Sales “Over-starting” in an area by rushing new home inventory could lead to: spot “overbuilding” or putting foundations in on an “early basis” sometimes several builder-starts are taken through foundation, silt fence, garage floor, drive-gravel base, yard soil movement, temporary electric, sewer and water lines-street to foundation, foundation sealing, back patio slab (all this is after building permit is obtained and posted on site). Then Builders at Times Might Pause “Starts” can also include single family detached rentals and this investor can put in several foundations at one time. The large builder that does not build to match sales but builds just to produce homes; if they over-build, they discount to lower inventory, but the production rate is an even flow. All is complicated by builders dealing with price increases and how to pass off the increases. Serious material shortages, much due to the pandemic and some due to market manipulation, and some just short of supply; and some by growing housing demand. Supplier surplus material buying months ahead to try and fill the supply chain which complicates the issue. Some builders who pre-buy (one builder buys windows by the truck load for a warehouse) with no designation for an actual house. We need a 2.5-year supply of developed lots - In many markets the range is generally 1 year and 2 months to just over 2 years. If you remove the junk lots, it is less than 1 year supply of developed lots-to about 1.5 years; lot shortages will push up prices of raw land and developed lots. While all of this is going on, existing home resale inventory is down significantly because many people have deferred listing their existing house because of the virus; with low interest rates, people are buying many newer homes. In 4-6 months, the vaccine will result in a significant jump in available listings of existing homes and have a modest softening effect on new home sales. Lot price increases are forcing builders in some cases to over price a county land area. There must be increasing caution not to over-run a local market price. Today it is common to sell a house quickly all the way to getting 4 to 20 contract offers on a house with over 60% of the contracts over the asking price. Meanwhile the new administration is pushing up gas prices, spending money in unrealistic ways and the Federal Reserve will need to sort out how inflation will show up and when and to what degree - the start of a financial problem. Here are the cautions in order of priority – most difficult first: a. The over pricing of homes in some land areas because of lot shortages b. Buying land to develop, i.e., creating land shortages c. Material shortage and pricing increases d. Builders are not only finding a lot shortage now and it will not get better over the next 3 years e. Existing home inventory shortages with spots of no inventory f. Price issues across the board is the single issue driven mostly by shortages g. Single family permit count is “not all real” – many permits are single family detached rentals which contributes to shortages Then we have in this pandemic, buyers transfer from New York, California, Chicago & other markets to southern markets – increasing new home absorption rates. We see 5% to 30% of market parts as a market with incoming transfers. Starts are up because of a good market plus a current (temporary) lack of existing homes for sale; plus, a strong “transfer” in market; and many single families “starts” look like a new for-sale house but are in reality single family detached rentals. Thank you, Edsel Charles Chairman MarketGraphics Research Group, Inc. Page 9
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