The Phoenix Country Club was packed Friday morning for Valley Partnership’s breakfast discussion on Arizona’s housing market.
Moderated by Jim Belfiore, president of KASA Development, industry leaders shared their hopes and fears of what has been a roller coaster ride for many homebuilders during the coronavirus pandemic.
With 205 in attendance, homebuilders said they were in survival mode during the first couple of months of the coronavirus pandemic last spring.
“It was scary,” said Greg Abrams, vice president of PulteGroup and a panelist.
But about a month into the lockdown, they saw a huge influx of demand. They rode that intense demand over the past year, until hitting a bit of a lull in July.
Labor, supply shortages
Jeff Gunderson, senior vice president of land operations for Miami-based Lennar Home Corp. (NYSE: LEN) and a panelist, said it’s still taking homebuilders longer than usual to build homes because of labor shortages and supply chain issues.
During normal times — pre-pandemic — it took five months to deliver a new home to buyers. Now it’s looking more like seven months for a 2,200-square-foot home, he said.
The labor shortage isn’t just impacting construction crews, said Ron Hilgart, principal of HilgartWilson and a panelist. He’s having a tough time finding enough talent to take on homebuilders’ projects.
Hilgart said he’s even turning away long-time homebuilder clients.
“We can’t find the qualified help,” he said.
The supply chain also is making it difficult to finish homes, Gunderson said, as homebuilders wait for things like windows and garage doors.
“How do we get these homes across the finish line? We have never faced this in our careers,” Gunderson said. “This is all new-world type stuff.”
The cost of construction supplies has increased 80% since 2016, Hilgart said, as homebuilders are having a tougher time getting their hands on basic supplies.
For example, an 8-inch PVC pipe for water costs $38 today, up from $16 in 2016, representing an increase of 138% over that 5-year period. Meanwhile, concrete for sidewalks increased 118% to $4.35 per foot.
At the same time, the consumer price index over the past five years went up 11%, he said.
Gunderson said homebuilders have to order PVC four to six months in advance so that it’s ready when they need to install it.
Flat housing demand
Zonda also issued its August KnowledgeBase research report on Friday, which reiterated that housing demand was flat from July to August.
New home sales were down 31% in August from the annual peak month of May and 15% lower this August from August 2020.
Speculative builder supply is down 78% from a year ago, representing possibly the lowest number of spec homes ever recorded in metro Phoenix. Only 450 spec homes exist in the Valley today.
The report also showed that net new home prices are 29% higher now than a year ago, and during the last three months they have increased at an average monthly pace of 3.6%.
Despite their best efforts, homebuilders are struggling to procure the products that go into homes and struggling to attract enough workers to build homes, Belfiore said.
“The recent drop-of in demand is, in part, simply due to this inability to build enough homes fast enough to meet demand,” Belfiore told The Business Journal. “Seasonality has also played a role, as has the huge increase in cost of ownership. The industry continues to deliver a quality home product and is working to stabilize prices.”