While the market for new home construction remains robust, builders across the U.S. face challenges that didn’t exist just a short time ago. Mainly, it’s harder for construction companies and contractors to keep pace with consumer demand as more buyers test the market.
According to reports on both Business Insider and CNBC, interest rates are holding steady at about three percent, and the inventory of available existing homes is still lower than usual, historically speaking.
Market dynamics like these should be a boon to new home builders and development franchises, too. Still, nearly everyone in the industry is having a hard time communicating with buyers about why many projects remain incomplete.
To shed more light on the subject, we sat down with Stew Walker, Epcon Communities’ Vice President of Construction, who provided insights on six challenges home builders face as 2022 draws near.
1 – Delayed project completions
Across the country, construction projects are falling behind, which is starting to affect buyers. In years past, top home builders rarely had this issue since labor and supplies were fairly plentiful from their perspective.
Delayed projects are making it harder for builders to keep up with demand – and finish the homes at their regular pace in months prior.
Sometimes the issue is a labor shortage, but more often than not nowadays, it’s a material shortage. For instance, insulation is scarcer, yet that’s not the only construction material delaying the build cycle.
2 – Window shortages
Typically, windows are plentiful since many vendors are available nationwide, but the market today is different. Simply put, window manufacturers and wholesalers can’t keep up with demand from home builders.
“A builder can request windows and expect delivery in about 8-10 weeks, but now, the windows may not even reach the construction site for 20 weeks or more,” said Walker.
Without a doubt, finding windows has been the most consistent problem for new home builders, so much so that it’s affecting the length of the typical build cycle. Walker explained that typically, a home is ready within about 100-105 days, yet today’s delivery times can be as long as 150 days or more. And that’s assuming the builder has access to a national accounts program like the one Epcon Franchising provides.
3 – Electrical component shortages
As another example, electrical components like on-off breaker boxes and panel covers are in short supply as well. In some parts of the country, breakers aren’t widely available to home builders, if at all.
The result is that homes aren’t live-in ready on time since builders have to wait for critical electrical components. Not so long ago, this problem didn’t exist, and appliances are another problem too.
But the homebuilding industry isn’t the only business hurting from the shortage. Appliance manufacturers, in particular, are struggling to keep up with demand.
4 – Appliance shortages
Although the situation isn’t as perilous as it was 4-6 months ago, appliances are still relatively scarce across the nation. One solution has been to use loaner appliances, but that’s not preferable and temporary at best. Buyers don’t appreciate it, and it’s only an additional, unusual and unnecessary expense for the builder.
“Wait times for vital appliances like refrigerators, microwaves and ovens have been as long as 45 days or more. Builders are on backorder because the manufacturers are on backorder and can’t get the raw materials they need to fulfill orders as scheduled,” said Walker.
Essentially, throughout the appliance market, no company can give accurate timelines on when products will even be available to buy, which only leads to price increases for builders.
5 – Material price increases
Ultimately, all of these shortages only raise prices for home builders. The manufacturer can’t absorb every loss due to labor and supply shortages, so they pass along the cost to the builder, who must then pass the cost to the buyer. No one wins in this situation, but that’s exactly what’s transpiring.
Home builders across the U.S. are seeing price increases effective immediately or in their next procurement, regardless of contractual obligations. The shortage is really that severe.
Ideally, home builders should be able to price out materials for an entire year in advance; however, today, pricing for materials can change within a matter of months or in a matter of weeks.
With this kind of dynamic in play, the question is this: is anything else contributing to rising prices?
Walker explained, the answer is yes. Yes, manufacturers and suppliers are dealing with surcharges as high as eight percent for not being able to offload cargo and ship it as scheduled. More often than not, this expense falls on the builder, which means the consumer eventually pays more as well.
Price increases are standard in the homebuilding industry, but they usually only happen a few times a year, if at all. Yet, prices are going up weekly, and there’s nothing to suggest upward price pressures will subside any time soon.
6 – Additional influences
It goes without saying that none of these challenges would exist to this degree – and at this wide of a scope – were it not for the unpredictable global economy.
Many manufacturers, builders and suppliers had to manage extended periods when employees became ill. For example, inspections are falling behind, which doesn’t have anything to do with material shortages or labor shortages. Inspectors are simply getting sick and struggle to catch up with demand, if at all.
The result is that the buying cycle gets far too long to satisfy customers’ expectations. Sometimes, buyers take ownership of a home that’s missing exterior items like gutters, downspouts, fencing or landscaping.
Only certain builders have the capability to source nationally instead of only locally. When developers don’t have a choice but to source locally, prices only go up since contractors will most likely be just as busy raising their prices too.
In the end, the projected profit margins for developments fall short since all of these unforeseen expenses keep fluctuating, but Epcon Franchising can offer a better solution.
Leverage Epcon Franchising’s purchasing power
“At Epcon, we have the ability to source from multiple suppliers; small custom builders do not because these companies may only rely on one plumber or one electrician. We have much more flexibility than others because we maintain multiple contacts across every trade. Whereas other builders rely on loaner appliances to overcome shortages, we rely on our national accounts to source products from all parts of the country.” said Walker.
Home buyers may say they understand initially, but they will grow less patient and more frustrated as time goes by and the permanent appliance doesn’t arrive. Either way, the general idea is still the same: home buyers don’t know when their homes will be ready, and builders don’t know when they will have the materials they need to build the house. But with Epcon Franchising, they have a better chance to keep up with the demand because of the the logistical capabilities that Epcon’s national account program provides.
Supply shortages may persist well into 2022, but the advantages of Epcon’s national account program should still deliver.
Moving forward, the question isn’t whether or not the shortages will keep raising prices; the real question is which developers have the logistics and infrastructure in place to overcome those higher prices?
About Epcon Franchising
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