Top challenges and opportunities for new construction in 2021

Josh Cooley is the owner/operator of a successful real estate company in Eugene, Oregon and head coach at Reger Coaching and Consulting.

The real estate sector is facing major changes and challenges that affect all players involved.

In July 2019, our Eugene, Oregon agency sold its first home in a new development for $475,000. In June 2021, the 60th home we sold in the same subdivision closed for $595,000. Buyers who signed contracts eight months ago haven’t even completed a home yet, but they’ve already earned $50,000 in equity from rising sales prices.

New construction challenges in 2021

The demand for housing far exceeds the available supply across the country. Underbuild in the past 20 years and a shrinking stock of existing homes for sale has led to a housing shortage of 5.5 million units, according to research from a recent report by the National Association of Realtors.

At the same time, industry-wide material scarcity, price increases and labor shortages have hit builders hard and made it a struggle to complete projects on time and according to plan. I’m not saying this to discourage anyone from buying a new home now. On the contrary, the product has not suffered at all despite the hardships. Buyers are thrilled with their home when they move in, and I’d like to congratulate all the industry professionals who have overcome hurdles and buyers who have worked their fists for a wild year and a half.

But if you’re looking to buy a home soon, it’s important to understand the current environment so you’re prepared for the ups and downs. If you know how to anticipate these three challenges, you will save yourself a lot of frustration, time and money in the long run.

1. Availability of materials

The pandemic created the perfect storm of supply chain problems. Many manufacturers stopped or delayed production during lockdowns last year. Now their inventory is exhausted and they still haven’t ramped up production to meet the huge demand from both builders starting new construction and homeowners tackling do-it-yourself renovation projects.

We see empty shelves and long delays for a long list of essential items: paint, paint rollers, front doors, glass shower doors, electrical boxes, insulation, rebar, appliances. In a perfect world, it would take 100 days to build a house if everyone came on schedule and we had good weather. Now the lead time for device delivery is 12 to 16 weeks instead of two to three weeks. Contractors rush to buy supplies on Amazon or other online stores, and if they can’t find them, they just have to wait. I know a builder who has five houses ready to sell for $800,000 each, but they sit vacant until he can find insulation.

2. Price of materials

Our new home wood stock has increased from $20,000 to $60,000 in the past 18 months, which is in line with the national trend. Timber prices rose 300% from April 2020 to May 2021, raising the average price of a new single-family home by nearly $36,000, according to data from the National Association of Homebuilders. Prices are now starting to fall again, but the effects won’t go away overnight, we’re not raising house prices based on fluctuating material costs.

Strong buyer demand has been a boon in this regard. We’ve seen a 15% increase in home values ​​in the Eugene and Portland regions over the past 18 months. Without the housing shortage and the influx of out-of-state buyers moving to Oregon, we would have been forced to stop building until prices stabilized.

3. Labor Challenges

Staffing issues affect virtually every type of business in the industry. Companies providing construction, painting or landscaping services have a hard time staffing as some workers take advantage of extended unemployment benefits.

Title companies, appraisers, lenders, brokers and other office-based businesses have also had to figure out how to work remotely during the pandemic while keeping up with the increased workload. Our region sold 10% more homes in the first quarter of 2021 than in the first quarter of 2020. Everyone is trying to close more homes with fewer staff, which can lead to delayed closing dates, frustrated buyers and burnt-out employees.

Recommendations For navigating through new challenges

There will always be hurdles in building a new home, be it in 2021 or 2031. Here are three steps you can take to minimize stress and make the process as smooth as possible.

Remember it is a team effort.

Each new build involves at least 50 people and everyone is on the same team, from the buyer to the contractor to the title agent. Things that one person has no control over will go wrong, and how each person handles these setbacks affects the entire team. I’ve worked with people who have handled difficult situations with absolute grace, and others who have gotten out of hand over every little thing. Patience and understanding go a long way in any interaction.

Get to know the process.

Ask questions to make sure you understand the build timeline, milestones, and limitations. Does the builder provide guarantees for obtaining materials? When does it make sense for you to do a walk-through? What do you want to lay down in advance in the contract? For example, you might want to lock in your budget to avoid price adjustments or negotiate the time to rent your home back in the event of a closing delay.

Bet on what you want.

Know that if you choose the paint color, tile design, or door jamb, it is in your best interest to stick to it. When making a final decision, keep in mind the lack of inventory and long lead times. No matter how simple a change seems; right now, the reality is that almost nothing is easy.

It is an exciting time to be involved in new construction. The past 18 months have been quite challenging, but they have also been a great example of what we can achieve when everyone comes together with creativity and resilience.

Bids For Real Estate Council is an invite-only community for real estate executives. Am I eligible?

Leave a Comment