Area homebuilders adapting to rising costs, shortages in building materials

Record high prices for lumber are leading to higher home building costs across the country, but Fort Smith area homebuilders continue to see a record number of new home builds and record sales revenue.

Lumber prices have increased by more than 250% since April 2020, according to the National Association of Homebuilders (NAHB). The association said the increase has added more than $36,000 across the nation. The NAHB also estimates 24.3 million people across the country are now out of the home buying market, said Stephanie Stipins, executive director of the Greater Fort Smith Association of Home Builders.

“Locally, we are seeing an increase in the cost of supplies, and there are some people reluctant to buy (a newly built home). But maybe it’s because interest rates are still low enough to make up the difference in the life of the house because people are still buying,” Stipins said.

The region still continues to see a record number of homes being built and record revenues on the sales of those homes, she said.

Fort Smith issued nine permits for new residential construction in April with a value of $2.514 million. The numbers for the first three months of the year were: 16 permits in March with a value of $3.5 million; seven permits in February with a value of $1.8 million; and 11 permits in January with a value of $2.68 million. While the numbers from February through April were down from the corresponding months in 2020, January’s new residential construction was up 67.5% from January 2020 and the numbers are higher than in 2019.

Tim Mays with Tim Mays Homebuilders said that while he has had some buyers decide to wait on building a new home in hopes the cost of lumber and other supplies will decline, his company still has lots of work that is keeping them extremely busy.

“I think some are holding off on buying, hoping the prices go down in a few months. But there are others who are wanting to build quickly because they are concerned the prices might continue to go up,” he said.

Stipins said she has had builders tell her newly built houses are getting full offers within a week of being put on the market. She said the same is true in the area of older-built homes.

“I’ve had friends talking about homes that are going up for sale and being sold within a week or so of listing,” she said. “The demand is hard to explain. Maybe with (COVID-19) more people are wanting to leave major cities and relocate? I know it’s not just here; it’s across the country.”

But there is a little problem with the cost of materials leading to an increase in building costs. Though many builders, like Mays, are trying to absorb what cost they can, the cost of the newly built homes is higher than before the lumber prices started to skyrocket. But the appraisal price of the home is not rising to adjust to the new costs.

“It takes a while for the appraisals to catch up when costs go up like this,” Mays said. “That’s causing a problem for some buyers.”

Stipins said because home loans are based on the appraisal, some newly built home buyers are having to pay more cash upfront when buying. She said typically, a homebuyer can expect to recoup their initial investment within three to five years of buying. With the higher costs not being reflected in the appraisals, it will mean those initial investments will take more than 10 to 12 years to recoup.

Mays said the higher building costs are not just with the lumber. Electrical wire is up immensely, he said. So is concrete, plumbing supplies and fiberglass.

“It’s across the board. We’re seeing it in everything,” Mays said.

Even the price of Blandex, a brand of engineered wood similar to particle board, has gone up significantly since November to about $44 to $45 a sheet. The problem comes from a worrying low supply caused by supply chain disruptions and a sky-high demand, industry experts say. Stipins said builders are having a difficult time getting the supplies they need. The Greater Fort Smith Association of Home Builders is facing a 12-week delay in getting windows for its 2021 Show Home because the factory that is making them cannot keep up with the demand.

“They said they could look at adding another line, but there are just not enough workers to do it. They can’t hire the people they need for production,” Stipins said. “There are just so many factors — cost, lack of labor force and more.”

The unprecedented freezing weather in February and accompanying power outages caused problems with some factories in Texas as did a fire at a brick factory in Texas, she said. Because factories are having a difficult time getting enough product made, suppliers are having a difficult time getting the materials builders need, she added.

“It’s a bit of a mess,” Stipins said.

And it doesn’t look like it’s going to soon change. Industry analysts expect the current high prices to come down in 2021, but they don’t expect them to go back below pre-COVID 19 pandemic numbers, Mays said. NAHB has said analysts estimate the new range when prices do drop to be anywhere from $550 to $865 per thousand board feet.

“I know I have had suppliers say they are pre-buying lumber now because they are concerned the price will continue to go up and they want what they can have on hand at the lower price if that happens,” Mays said.

Mays says area builders will continue to try to absorb as much of the increase as they can and look at ways to cut costs that won’t hurt the integrity of the build. One of the steps he has been trying to do is use a lesser price sheeting on sidewalls when possible.

“It’s not something we usually do because it takes a little more time and effort to use, but it won’t lose any of the quality of the build,” Mays said.

The rest is just a waiting game.

“We’re just going to hold on for the ride and be prepared for what happens. … We really just don’t have a choice,” Mays said.