Construction rebounds, more jobs and higher prices

The local construction job sector rose 9% in March, employing 700 more workers than a year ago.

The uptick in residential construction has subcontracting crews busier and able to demand more money, which is also driving up the cost of construction, according to Fred Rausch, vice president of development for Rausch Coleman Homes.

“The number of new permits are up this spring as the supply of new homes is pretty low relative to demand. It’s been harder to hold on to subcontracting crews for long periods of time as there are more builders calling for their services” Rausch said.

He said new home inventory priced in the low $100,000 range is in short supply as are homes in the $270,000 to $280,000 range. Rausch builds homes in Northwest Arkansas, Fort Smith, central Arkansas, Tulsa, Oklahoma City, Joplin and Kansas City.

MATERIAL COSTS
Rausch and other builders like Tim McGuire, of Cornerstone Construction in Bentonville say the cost of materials has also risen over the past year which is helping to drive new home prices higher.

“Overall material costs have risen 4% over last year, led in part from commodity inflation. The OSB sheets, which are used on the exterior of the home and in the roof decking jumped from $6 a sheet to $17. It takes about 220 sheets for a home that is 2,000 square feet. That’s added roughly $1 per square foot to the building cost, just for that one product,” McGuire said. (OSB is oriented strand board, also known as particle board)

Since last year the 4% jump in materials have pushed home prices this spring to $112 per foot, up from $108 last year, McGuire said. As lumber mills have closed and home building has ramped up across the country, the material cost increases are a direct reflection of supply and demand.

Gene Pike of Rogers has put up drywall off and on for 30 years. He said his business was steady all winter, but slowed for a couple weeks around tax time, which is normal.

“We have picked back up the pace working with several home builders and also doing remodels,” Pike said.

The cost of his drywall materials have risen from 16 cents a foot to 29 cents a foot over the past two years, according to Pike. He said the compound mud and fasteners are about 30% higher today than a year ago.

Lee Scarlett, owner of Celtic Custom Homes, said lumber prices have edged up, but the biggest problem he has seen this spring is the extended wait time on everything from garage doors and trim to floor tiles.

“Suppliers have let their inventories run out and now that the entire country is building again it is taking three and four months to get some products once they are ordered. I think they are waiting until the order is placed before they cut the trim or produce the tiles, which means we have to work around these missing fixtures,” Scarlett said.

He is finishing two high-end homes that were started last year and said the custom home demand has been good as he’s been busier in the last 18 months than in the past four years. Scarlett expects to build five custom homes this year, which is full capacity for Celtic's small operations.

LOT SUPPLY
Rausch and McGuire each point to a bigger concern for builders in the coming months as the number of desirable lots are dissipating in certain areas – namely east Fayetteville and Bentonville.

Rausch is looking at potential development in east Fayetteville, but has not made any commitments. He continues to build out lots he already owns in west Fayetteville, Rogers and Bentonville.

McGuire is strictly a Bentonville builder and has about 25 homes in varying stages of completion within four local subdivisions – Highland Park, Riverwalk, Angel Falls and The Farms. Of those 14 are pre-sold, he said. McGuire works to keep a small inventory of unsold homes so that he has something to show perspective buyers.

“We are running out of platted lots in Bentonville because there has been no new development for nearly seven years. Lots developed in 2006 had an infrastructure cost of roughly $35,000. That’s what we are building on today. But that escalates to $60,000 for new development, which is going to bring sticker shock in the coming year,” McGuire said.

He estimates the cost per square-foot will jump anywhere from $7 to $10 when the next phase of lot development happens.

Rausch said there are still a fair number of lots but they’re not located in areas where builders are willing to run the risk that homes will sell. He agreed land costs will have to go up for new development and expects the desirable lot inventory within Benton and Washington counties to last about 12 months.

“After that, we are going to have to start turning new dirt, and that will add to the overall new home cost,” Rausch said.

These home builders say prices today are about as good as they are going to get and only going higher in the coming months.

Tom Reed, appraiser and real estate consultant, agreed that future development will eventually drive up the costs of new home construction, but it will be needed if the region is going to have a new home market.

“As new home prices rise to compensate for higher land costs, the existing home market could benefit. In the past, new homes were very competitively priced with existing homes but that won’t necessarily be the case if new development costs are passed on the buyer,” Reed said.