An infill-oriented, Houston-based, high-volume builder we talked with this week was thankful, but worried about materials costs negatively impacting the pipeline of more than 300-units he's got out in front of him.
And that's not to mention the fact that, since he's having to re-spec and re-order a lot of building supplies because of price increases on what's shipping these days into the market, he's going to be late on deliveries.
The good news, he said, is that he had a model home unit he could go to for refuge a couple of weeks ago, as Hurricane Harvey poured flood waters higher and higher into his own home, and he "walked through water up to my waist, hitch-hiked, and walked" to one of the models, which fortunately were high and dry during the storm.
However, it's clear now that price shocks are reverberating through the Houston-area market as building supplies to the area have convulsed as clean up and reparation efforts begin.
Our source describes that wave by wave, trade crews have either ratcheted up their prices or threatened to depart to where their labor will be paid a higher hourly fare. What's more, this executive notes, fears over the heated political debate on what will happen to Deferred Action for Childhood Arrivals, who represent what this executive estimates to be more than 50,000 of the Houston market's construction labor force, add to uncertainties and anxiety on how rebuilding and new building in Houston and its environs will amp up enough for the area to return to normalcy.
"One thing that did not happen in the wake of Hurricane Harvey is that median household incomes in the market didn't suddenly increase double-digits, so we can't pass these higher costs on to our home buyers, which means we have to go back to the drawing board on the products we're building and figure out how to take costs out," says our home building executive source in Houston. "That's certainly going to delay our delivery of about 300 units, with more delays following that wave."
Even before Harvey and Irma's destructive one-two punch in Texas and Florida, prices on building materials and products were heading up as a source of concern, especially as volume builders operationalize a number of fairly new strategic initiatives into more entry-level community offerings, where margins are already tough to come by.
A monthly drill-down by the National Association of Home Builders into Producer Price Index components that are of greatest relevance to builders spotlights August spikes in softwood lumber, OSB, and ready-mix concrete.
Since January 2017, softwood lumber's demand price index has soared by 22%, and OSB is up 33% in the same timeframe, according to NAHB economics department analyst David Logan, who notes that rising gas prices are a key contributor to cost inflation in materials right now, including ready-mix concrete which jumped 0.5% month to month in August. Logan writes.
The price of gypsum increased marginally, but could be one of the first materials to be affected by rebuilding efforts in the wake of Hurricanes Harvey and Irma. Remodeling will be the first building activity possible which will bring with it increased purchases of drywall.
Stresses on volume, timeliness, and cost of supplies to hurricane-ravaged Texas and Florida markets will only at to the cost pressures already worrying builders, who've been champing at the bit to build more entry-level homes as demand for them surges in the latter third of the recovery cycle.
"Affordability is a big issue, and we're going to do everything innovative we can to make it so that our homes are priced so that younger people who are working in the Houston market can afford our homes on their incomes, whatever happens to materials prices," our executive source says. "We're not apologizing for what we do, even if what we do brings down some of the real estate comes in the neighborhoods we develop. We're not going away, because this market needs what we're building."
Few doubt that Houston and northeast Texas, and Florida will ultimately benefit from a surge in economic activity that will eventually take the place of the surging Atlantic Ocean. But between now and the moment those local economies are freshly energized, the wait to get back on track with prior building plans is frustrating and costly.