The Housing Pipeline

The home building industry is a manufacturer. Builders and developers produce lots and or homes. Currently, their manufacturing conveyor belt has limited product. This graph shows the decline in homes under construction for sale and homes completed for sale. These are speculative homes. All builders will have some spec homes in inventory for buyers wanting to buy and close more immediately than wait for new construction.

My experience in housing recessions, primarily in leadership roles with regional builders, is to limit the number of spec homes. Today, not only will builders have the same opinion but lenders are not approving funds for spec building.

With existing new inventory (spec homes) significantly lower, builders will not be able to meet the demand due to the lag time between the point of sale and the certificate of occupancy. In some locations, the time to construct a 1,800 square foot home may on the average be six months. This time frame is without factoring in local government’s inspection process, labor shortages in certain trades, possible material shortages, and weather conditions. These are other factors that will impact the ability to satisfy the pent-up demand in a reasonable time.

Low inventories, higher demand, labor shortages, and increased material costs will all cause new homes to increase in price faster than you would expect.

Act rather than react.