CEO Corner: Challenges Homebuilders Are Facing

The homebuilding industry is seeing a tremendous increase in the costs of materials, across the country and the commonwealth.

I recently talked with Dan Durden, the CEO of the Pennsylvania Builders Association, along with Dr. Robert Dietz, chief economist for the National Association of Home Builders, who both discussed the challenges homebuilders are facing.

Dietz said members of the NAHB had an outstanding year in 2020, with single family starts growing by 12%. “It’s clearly not the total we need,” he said. “If you look at inventory nationwide in the resale market, I think the NAR data has a 2.1-month supply, which is much too low. It’s the reason home prices are growing a lot faster than incomes are.”

Both Dietz and Durden reported that costs of building materials have been increasing dramatically.

“Lumber, if it’s available at all, has dramatically increased from where it was. We all talk about lumber because it’s kind of the leader of the pack,” Durden said. “But I couldn’t tell you a single important building material where the price hasn’t gone up significantly from last year.”

In a recent survey for the NAHB/Wells Fargo Housing Market Index, nearly half (47%) of single-family builders indicated that they were including price escalation clauses in their sales contracts. Of those responding, 42% said prices were typically guaranteed for 15-29 days, while 33% replied prices were guaranteed for 30-59 days.

Nearly one in five builders (19%) have had to delay building or sales when costs spike, and 15% indicated they are laying the foundation but pausing before framing.

To hear more about the home building conditions in Pennsylvania and nationwide, watch this CEO Corner.