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Historic shortage of homes for sale fueled by builders' supply chain woes

·3-min read
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A labor shortage and lack of ready-to-build land and materials have limited the pace of construction. A new report from the National Association of Realtors (NAR) finds the housing market needs to build at least 5.5 million new units, both single-family and multi-family homes, just to keep up with demand and keep home ownership affordable over the next decade. 

The industry trade group said it hopes the report convinces lawmakers to include housing investments in any infrastructure bill. Without additional housing, industry experts say more Americans are likely to become renters in the coming years.

Jerry Howard, CEO of the National Association of Home Builders (NAHB), told Yahoo Finance Live that builders are having trouble with their supply chains.

“It's clearly the builders are having trouble with their supply chains, everything from lumber to cabinets to appliances. And that is impacting the time it takes to build a house, and the cost increases that are attendant to that are also impacting the builder's ability to get a loan,” he said. “What I'm worried about is that it's also going to ultimately end up being a problem for the consumers getting their loans as well.”

Confidence among U.S. home builders fell to a 10-month low in May as rising costs for building materials pushed home prices higher, making it harder for some homebuilders to get loans. The National Association of Home Builders Wells Fargo Housing Market Index dropped two points to 81, down from a recent record peak of 90. However, anything above 50 is still considered positive.

An unprecedented shortage of available homes for sale has sparked bidding wars for many properties, which in turn has pushed prices higher. The median existing-home price in April 2021 was a record $341,600 and the (NAR) expects home prices to grow further by 8% in 2021 and by 5.5% in 2022.

A surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily, according to the NAHB. Lumber prices have started to come down from historically high levels, but some industry experts expect lumber prices to remain elevated for the foreseeable future. 

DORAL, FLORIDA - MAY 27: Enrique Matamoros shops for lumber at a Home Depot store on May 27, 2021 in Doral, Florida. According to the National Association of Home Builders, lumber prices went up 300% last year. Factors driving the price increase are more demand and growing production, labor, and transportation costs.
 (Photo by Joe Raedle/Getty Images)
DORAL, FLORIDA - MAY 27: Enrique Matamoros shops for lumber at a Home Depot store on May 27, 2021 in Doral, Florida. According to the National Association of Home Builders, lumber prices went up 300% last year. Factors driving the price increase are more demand and growing production, labor, and transportation costs. (Photo by Joe Raedle/Getty Images)

Howard said higher costs and supply shortages have forced homebuilders to modify their business practices, including adding “escalator clauses” to their contracts. “In other words, I think the lumber for your house is going to cost X. I think the cabinets are going to cost Y. But they might go up to Z and A, and if they do, that clause is in the contract,” explained Howard. “Unfortunately, those kinds of clauses sometimes scare the consumers off, and that becomes an issue.” 

Howard said some builders are delaying sales until they know they have all the materials needed to get started and get the job done in a timely manner.  

“Another thing I've seen them do, in the South, for example, is lay the concrete slabs for the housing and then just not start to frame it until they know lumber prices are coming down," he said. "That one is a dangerous one to me because that indicates potentially a slowdown in the housing sector, and it's something that we want to avoid.”

Alexis Christoforous is an anchor at Yahoo Finance. Follow her on Twitter @AlexisTVNews.

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