Out of work construction labor remains high and material costs continue to skyrocket so who will benefit from this reality?

We are reaching new higher baselines for material costs and home builders will not be able to absorb the cost nor will buyers be able to afford higher prices. However, there is one new home buyer segment that will benefit from the dynamics of today’s housing market. 

After every recession, the housing industry readjusted. Construction costs and labor availability seemed to recover and reach a reasonable norm reflecting the overall economy. Not so much after the great recession. Housing remains stressed and has not found a new foundation. In fact many aspects of the housing industry DID NOT reset after 2009. Construction labor unemployment rate remains and many have left the industry. Or most likely, the labor force that builds homes has migrated to the states with a strong economy such as Texas. 

Since housing is a local fragmented industry, the labor force will fluctuate based on the local market. Yes, there is a labor shortage in housing but the void will be filled as housing maintains a momentum. The issue is not the labor force or even the cost of the labor, it is the time it takes for untrained labor to fill the void.

The quality of construction will suffer in the short term and it will take longer to build a home.

Can a home builder raise the sales price just because material prices are escalating?

My answer is NO!

There are market segments affect by interest rates and costs increasing more than others. Thus, we may see a shift in builder philosophy of ignoring the first time home buyer market simply because builders can’t raise prices because of material cost increases and. We have to ask ourselves:

Where will our children live?

Random Length Composite Price (Lumber) 

Source: NAHB

2005                           $383               Height of Housing bubble

2009                           $203               End of the Great Recession by definition not reality

2013                           $389

January 1, 2014        $390

 

The housing market is still upside down and with the Fed closely monitoring inflation and acting as a puppeteer. If they can ease everything back into a reasonable balance, they may succeed in energizing this economy. Unfortunately, the economy has moved to the back of the line since the world stage requires more pressing attention.

I would suggest that housing is the last true entrepreneurial small manufacturing business remaining. The longer it takes for housing to recover; I believe the economy will suffer even more.

The silver lining for home buyers is the fact that the move-up buyer can benefit from home prices increasing, limited supply, and low interest rates. This is the market home builders can meet and still make a profit.