Heard on the Street
TITLE: Market up but squeeze on builders threatens new-home prices
PUBLICATION: Star News
DATE: April 27, 2013
The home-construction industry here and across the country is starting to feel effects of a rebounding market. But they’re not all positive for builders. Neither are they for buyers, who may face rising prices in the months ahead.
Builders are being squeezed by:
A shrinking supply of bargain-priced lots.
Rising prices of building materials.
Increasing pressure for higher labor costs, even in an era of high unemployment.
New-home sales rose nationally to a 417,000-unit annual pace in March, driven by sales in the South and Northeast. That’s left only a 4.4-month supply of new-construction homes, according to a report from Wells Fargo.
Higher demand for houses, however, is proving to be a double-edged sword for builders, cutting already slim margins, industry experts said.
But because of those margins, builders will need to pass on some of their increased costs, said Donna Girardot, executive officer at the Wilmington-Cape Fear Home Builders Association.
Behind the increase
Pent-up consumer demand comes as bargain-priced buildable lots are disappearing.
“Most of the surplus in distressed and foreclosed properties has been absorbed,” Girardot said. Builders “are seeing the supply of buildable lots disappearing very rapidly and that has affected the price of the land.”
“We have seen a dramatic surge in the market – land and lots – over the last 12 months,” said Brian Eckel of Cape Fear Commercial in Wilmington. “In neighborhoods such as Autumn Hall, we have seen as much as a 20 percent increase in lot pricing from the bottom.”
A local builder’s view
“Housing prices are going to have to go up,” said Shawn Horton of Trusst Builder Group.
His firm, however, isn’t under quite the pressure that other builders are because it owns scattered lots in different communities that were bought at low prices.
The firm bought 70 lots in the formerly stalled Hearthstone development on Lanvale Road near Leland for “less money than it would have cost to develop the land.” It has 50 left that have not been built on.
But Horton sees prices in general “starting to go up a bit, based on the absorption of foreclosed properties” and rising consumer confidence.
“We’re gingerly easing up (in price) but only as needed,” he said. “We’re not trying to increase margins.”
Supply companies scaled back or shut down as the housing slump depleted their markets.
“Construction materials have definitely gone up,” Horton said, though he has had no supply problems.
Other factors also are pushing up prices.
Lumber has gone up, Girardot said. In the West, lumber is going to China, and “the Southern pine and spruce in the East is going to the Northeast because of Hurricane Sandy,” she said.
There also is pressure on labor costs.
“There is a pent-up labor price increase that is out there somewhere,” Horton said. “With our subs we are able to manage it. We got through all of this with guys we had for the bad years. We have relationships. You can’t do that for a long time.”
Girardot said labor costs haven’t risen in the Wilmington area yet.
But she pointed out that many subcontractors went out of business, started non-construction businesses or left the area during the worst of the housing slump.
As a result, the local labor pool is relatively small to meet the growing construction demand.