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Amid a period of robust home buying demand, supply chain disruptions are hindering companies at every stage of the home building process, creating backlogs and shortages across the country.

Pandemic-related factors have caused raw material prices to rise significantly in the past few months after a period of moderation, and transportation delays have caused sourcing issues for builders in many key product areas, including windows, garage doors, and appliances. Raw material prices are having a direct impact on home price appreciation, with the NAHB estimating lumber price increases have added $18,600 to the price of an average new single-family home since the fall.

A survey of home builders by Zonda conducted in January found 90% of builders increased prices month over month; the majority of respondents said price increases were a direct pass-through because of rising material prices. The magnitude of price increases also are growing larger compared with more moderate price hikes between $3,000 and $5,000 in the fall months of 2021. According to the Zonda survey, approximately one-third of the reported price increases from the January survey are between $10,000 and $20,000.

The Zonda survey also indicated that nearly 90% of builders were intentionally capping sales due to production capacity issues related to the supply side and inability of inventory to meet high demand. Approximately 93% of builders are reporting that supply disruptions are still a “major issue” to their businesses.

“The biggest concern continues to not come from the demand side, they come from lead times, from building costs, and overall labor availability,” Zonda chief economist Ali Wolf said on the company’s January COVID-19 Update webinar.

Lengthy Timelines and Missing Parts

Continued supply chain disruptions are pushing construction timelines for builders. On a recent earnings call, PulteGroup president and CEO Ryan Marshall shared that lead times for order fulfillment have gone from six weeks to 16 weeks for some products, with limited options for substitutions. Meritage Homes CEO Phillippe Lord said ongoing supply chain disruptions lengthened construction time by about two weeks sequentially between the third and fourth quarters of 2021.

KB Home executive vice president and co-COO Rob McGibney said the company has developed methods for continuing to progress homes despite missing parts and expanded construction timelines.

“Garage doors are one of our biggest challenges, and there are still real issues around garage doors that we’ve taken some actions to minimize the disruptions from that through finding alternate suppliers or manufacturers,” McGibney said on the company’s most recent earnings call.

KB has minimized the garage door styles it offers in an effort to match what’s available in the supply chain and allow “suppliers and partners to focus on producing a smaller range of those products,” according to McGibney.

Shea Homes national vice president of sales and marketing Janet Benavidez shared on Zonda’s Building Product Materials (BPM) webinar that, in some cases, the builder was finishing homes with appliances either bought from Best Buy or appliance stores, or with “loaner” appliances to ensure homes were closed.

“[Loaners] do not go over as well with our home buyers,” Benavidez said during the webinar. “You might have a customer who is expecting a 48-inch range, and we are closing with a 36-inch slide-in range temporarily until we can receive the product. In those cases, the customers are happy they can close but are not necessarily happy that they don’t have their appliances.”

Limited Choices, Improved Quality

One solution that many builders, including Meritage Homes, Shea Homes, and KB Home, have begun employing to mitigate the impacts of supply chain disruptions is reducing SKUs in certain product categories.

“If you’re offering three or four of an item, take it down to one or two, and you reduce choice a little for the customer, but you improve your ability to get the product and compress the build time,” KB Home chairman, president, and CEO Jeff Mezger said on the builder’s quarterly earnings call. “Our mantra right now is to retain the personalization that’s required to give the customer choice, but it has to be something that doesn’t get in the way of the supply chain and build times.”

KB Home said limiting its appliance options from its supplier, Whirlpool, to only stainless steel features minimized the builder’s SKU count from over 400 appliances to under 150, which improved lead times and simplified internal processes with limited impact on customers.

“I think customer sentiment has changed, and, although they do want customization, it doesn’t have to be every single feature in the home,” Benavidez said. “I think it’s important for us to think about what we’re offering our customers, and those options that don’t have high take rates, remove them.”

Mike Farmer, president of commercial solutions at Builders FirstSource, said the reduction in SKUs may become the “new normal” and a way to keep housing prices down.

“The inflation we’ve seen over the past several years, we’re going to have to find ways to be efficient in the industry,” Farmer said on Zonda’s BPM webinar. “I think if we can reduce options in areas where no one really cares, where it’s less of an issue to the home buyer, to improve the inventory and the supply chain, we should continue to do that.”

Diversifying Sourcing and Communication

While limiting options is an emerging solution for builders, diversifying supply options has become a supply chain workaround for manufacturers suffering from constraints.

“We’ve struggled with some single-source arrangements that we’ve had, where our single-source partner historically has been an awesome partner to us,” LP Building Solutions chairman and CEO Brad Southern told BUILDER magazine. “We’ve become more aware and more willing to diversify our supply base in order to have multiple points [of sourcing]. The supply chain has been so fragile right now that you’ve got to have multiple options for supply if you want to sleep well at night.”

For Builders FirstSource, Farmer said communication with builder customers has become increasingly important as a way to keep costs down for the dealer.

“We’re looking more into how to ship products in full so we’re not having to go out to a jobsite four, five, or six times and spending more time on the phone,” Farmer said. “I think being smarter about how we’re doing things and communication is one of the ways to help stem the costs that are out there.”

While manufacturers are struggling to keep pace with the volume of demand in the industry, companies are not looking to increase capacity as a solution. Many manufacturers are hesitant to invest heavily in the facilities needed to create new capacity only to see demand stabilize in the coming months, according to LP. Additionally, Wolf said for companies looking to expand capacity, the wait lists on equipment for factories is at least two years, creating a situation where “the supply chain is also impacting our ability to fix the supply chain.”

Wolf said the expectations are that the supply chain will improve in the latter half of 2022, but improvement is contingent on several other factors, including labor and trucking capacity.

“It’s my expectation that the supply chain will get better with time,” Wolf said. “Yes, [the supply chain will improve] over time, but not in the next two to three months.”