13 December 2024

A New Beginning in Home Building: How Can We Keep Up with Demand?

By Ronald Smith

As a home builder, I have noticed a steady increase in confidence within our industry. It’s exciting to see the positive momentum building, but there’s one question that keeps echoing in my mind – can we keep up with the demand?

With a surge in buyers eager to find their dream homes, it’s clear that we are entering a new era in the housing market. The optimism is contagious, and it feels like we are at the brink of something great. But as we embark on this journey, we must also be mindful of the challenges that lie ahead.

The key to success lies in our ability to meet the growing demand for housing. We must ask ourselves: do we have enough resources to keep up with the pace? Are we equipped to deliver the homes that people are yearning for?

When it comes to building homes, it’s not just about the physical structure. It’s about creating spaces where people can build their lives. We need to ensure that we can provide homes that are safe, comfortable, and truly reflect the needs and desires of the people who will inhabit them.

But it’s not just about the homes themselves – we also need to consider the infrastructure that supports them. Are we investing enough in roads, schools, and other essential amenities to keep up with the demand? It’s a puzzle that we must solve in order to create thriving communities.

As a home builder, I believe that we have the power to shape the future. I am committed to meeting the challenges head-on and finding innovative ways to keep up with the soaring demand. This is not just a job for me; it’s a passion.

So, as I reflect on the increasing confidence within our industry, I am cautiously optimistic. With determination, collaboration, and a relentless pursuit of excellence, I believe we can keep pace with the demand and build a future that surpasses all expectations.

A New Beginning in Home Building: How Can We Keep Up with Demand?

I gotta tell you, mortgage rates have been crazy low lately, like way under 7%. And you know what? That’s got builders feeling pretty confident as we enter the new year.

But let me tell you, it’s not all smooth sailing. We’re still facing some challenges on the supply side. I’m talking about the supply chain and the rising costs of building materials. According to the NAHB, those challenges could keep giving us a hard time.

Now here’s the good news: builder confidence in the market for newly built single-family homes went up by a whopping seven points in January. Yeah, you heard me right. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released this awesome news on January 17. And guess what? This increase in builder confidence lines up perfectly with the drop in interest rates we’ve been seeing lately. Pretty cool, huh?

I gotta tell ya, lower interest rates really made buying a house more affordable last month. It got some folks back in the market after they took a break because borrowing costs went up in the fall, said Alicia Huey, the chairman of NAHB and a builder and developer from Birmingham, Alabama. We’re expecting more single-family homes to be built in 2024, which is great news because we need more homes on the market.

But here’s the thing, Huey added. Builders are gonna have some tough challenges with the cost and availability of building materials, as well as finding enough land to build on.

Prices of Building Materials Are Coming Down, But Still High

According to David Logan, who analyzes tax and trade policies for NAHB, the costs of building materials went up by 0.1% in December. That’s just a tiny increase compared to the 0.1% increase we saw in November (which was adjusted). On average, prices went up by 0.2% each month in 2023, but that’s way less than the 1.5% increase in 2021 and the 0.7% increase in 2022.

I wanted to talk to you about some important stuff related to building material prices. It’s pretty interesting, so stick with me!

So, here’s the deal:

  • Softwood Lumber: The price index for softwood lumber went down by 2.3% in December. That makes it the third time in a row that it’s gone down, and the fourth time in the last five months. Since July 2023, the index has fallen by 14.5% after reaching its peak. That’s a big change!
  • Now, let’s look at the big picture. Prices for softwood lumber went down by 31.3% in 2023 after a 3.2% decrease in 2022. When you think about it, that’s a huge drop when you look at it over two years. But even with that decrease, prices are still 22.7% higher than they were in 2019. In fact, between 2019 and 2021, the index jumped up by a whopping 84.6%. Isn’t that incredible?
  • Gypsum Building Materials: The price index for gypsum building materials went down by 0.3% in December and has remained unchanged since March 2023. In the past year, the index has decreased by 2% after experiencing a significant increase of 44.6% over the two years leading up to December 2022.
  • Ready-Mix Concrete (RMC): In November, the price of RMC decreased by 0.2% when adjusted for seasonal changes. This marks only the fourth decline in the past 36 months. The price decrease was mainly driven by a 0.9% drop in the South region, while prices in the Northeast, Midwest, and West regions remained stable. Over the course of 2023, the average price of RMC increased by 11.2%, and there was a 10.3% increase in 2022. These two years combined represent the second-largest increase over a two-year period since 2000.

Let’s dive into some interesting information about steel mill products and the mortgage market. Hang on tight!

  • Steel Mill Products: In December, prices for steel mill products went up by 3.3%, marking the first increase since May. Last year, the average prices for these products dropped by 16.1% after experiencing an 8.7% increase in 2022 and a whopping 90.3% increase in 2021. Compared to the peak prices in 2021, the current prices are 31.2% lower. However, they still remain a notable 65.1% higher than they were in January 2020.

Mortgage Rate Decrease Boosts Builder Sales Expectations

Great news on the mortgage front! According to Freddie Mac, mortgage rates have gone down by more than 110 basis points since late October. This decrease has lifted the expectations for future sales in the home building market, which is now in positive territory for the first time since August, says NAHB Chief Economist Robert Dietz. However, as we look ahead to 2024, we can expect some challenges in the form of higher prices for construction materials like lumber, potential shortages in available land for building, and the availability of skilled labor force.