Lumber supply prices continue to drop significantly, but Norman-based, metro-area builders aren’t holding their breath in a volatile building costs market, and prospective new homebuyers won’t likely see a drop in prices in the coming weeks.
These reports come as the average price for a single-family home in Norman is just under $250,000, an increase of about $60,000 since April 2020, according to the brokerage site Redfin.
Inflation continues to surge at a 40-year peak of above 8%.
The price of building a home is even costlier, with build materials up nearly 36% from pre-COVID levels, according to the National Association of Home Builders.
Builder confidence in the new single-family home market fell eight points to 69 in May, according to the most recent National Association of Home Builders/Wells Fargo Housing Market Index report. This grade is from 1-100 and is determined by surveying home builders.
It’s the fifth consecutive month of builder sentiment decline for the national survey of home builders and the lowest rating since June 2020.
“It’s just a complete supply chain problem from start to finish, and every aspect of construction has taken an increase, from labor to fuel,” Curtis McCarty, a residential builder with C.A. McCarty Construction, said.
Cautious relief, but prices still high
While some industry challenges brought on by the pandemic have not yet subsided, builders say a steep decline in lumber prices at least warrants a cautious sigh of relief.
Lumber futures contracts, which are traded on exchange, are down more than 50% since a January 2022 peak of $1,330 per thousand board-foot to $614 on Friday, however this decline will not show up in lumberyard prices for at least two to three months.
Mike Means, executive vice president of Oklahoma Home Builders Association, said a builder picking up a home frame package today is still paying prices from three months ago.
While the price decline of lumber is looking steep, it’s still 100% higher than prior to the pandemic, said McCarty.
“The [lumber] price drop is a very positive sign, but there’s so many other issues — windows are still taking an extraordinary amount of time to order,” Means said. “I know some builders are ordering windows before they even pour the foundation because it’s just taking that long to get them in.”
Ideal Homes has adopted a similar approach. Erin Yarbrough, director of marketing for the custom and pre-designed home builder, said delays for everything from windows, garage doors and microwave trim kits to attic stairs have caused disruptions in a home’s build schedule, creating difficult-to-predict timelines.
“When starting new pre-designed or custom homes, there are more decisions that have to be made at the very early stages of planning than ever before to ensure materials can be ordered as soon as possible,” Yarbrough said.
Builders are also dealing with quality control issues. Means said he’s heard of multiple instances in which builders order plumbing fixtures, and they open the packages only to find parts missing.
McCarty is seeing wait times of around 12-16 weeks for garage door orders, and even longer for some electronics.
“I’ve got homes closing right now that I still don’t have my appliances, and they were ordered 12 months ago,” McCarty said.
A representative of an appliance manufacturer told McCarty that due to microchip and harness shortages, fulfilling every order in a timely manner has been a challenge.
McCarty received a notice last week that his price for exterior fiberglass doors is going up 25%.
“Everybody is doing surcharges right now on fuel, from manufacturing all the way down to our daily deliveries,” McCarty said.
Interest rates: An outside factor
Interest rate hikes are compounding the low builder confidence. Last month, the Federal Reserve raised its benchmark interest rate by half a point in the second of seven increases likely planned for 2022.
On Thursday, federally-chartered home loan mortgage company Freddie Mac announced the 30-year rate dropped slightly to just under 5.1%, and the average 15-year mortgage sits at 4.32%.
Dillard Group Real Estate and 360 Realty broker and associate Rob Schaerer said persistent inflation, mortgages over 5% and uncertainty may have slightly cooled the market, but it’s still a frenzy.
“The people that I have seen taken out of the market recently are the ones I’m not entirely certain were in it to begin with,” Schaerer said. “This is not the market for tire kickers. The people that it’s really pushed out are not necessarily the motivated buyers, of which there are still many.”
Despite the delays, interest hikes for buyers, material issues and the increased cost of building, Schaerer said opportunity is there on the builder side for new construction.
“A long time ago, houses started appreciating, and you would see to a certain degree there was a pullback of what [amenities] builders would include, but right now the general tenor is for builders to make everything look HGTV, and I think builders are wanting to stand out from each other because they are charging a premium,” he said.
Even if lumber continues to trend downward for a sustained duration, Schaerer said that is unlikely to be reflected in many home pricing models in the immediate future.
“Builders just took it on the chin, and so they are going to want to maximize their return for a little bit to try and possibly make some or any of that up,” Schaerer said.