It’s been a tough few years for budgeting, sourcing, and scheduling building supplies as residential construction goods have increased by about 28.7% since January 2020, according to the National Association of Home Builders. And costs for some materials are witnessing even higher gains; softwood lumber has increased 73.9% since September 2021, and gypsum prices have risen 31.4% since August 2020. The surging demand for building products from a rapid growth in DIY and remodeling projects, combined with supply, shipping, and labor constraints, has put unwavering pressure on the market for building products.
“I think once the pandemic hit, demand for a lot of the products really continued to increase just at a rate that people didn't anticipate,” says Dave Sacchetti, vice president of builder sales at HomeSphere. “So early on you would see builders trying to actually absorb some of those increases because you didn't really know what was coming over the next couple of years.”
While some builders began absorbing those extra costs, others eventually turned to passing those costs on to clients. Incentives for home buyers started disappearing, and some allowances that were usually allocated for finishes became a way to pay for part of the now-more-expensive framing package.
Even though there isn’t an end in sight for this building supply dilemma, Sacchetti says there are ways to ease the cost burden. He has been working with home builders across the country for a decade through his work with HomeSphere, which is the largest community of home builders and building product manufacturers in the U.S.
Builder: What kinds of challenges are created when building materials increase in cost or become scarce?
Sacchetti: The biggest challenge is that at the end of the day, somebody's got to pay for the increases. So then it becomes like: “Alright. What do we do? Do we pass this along to the customer, do we eat it?” It's challenging right now. We check in with our builders monthly, and we’ve seen how home pricing has increased by necessity.
We've also seen more builders trying to be a little more innovative, and we’ve also seen a lot of brand hopping or shopping. So, a builder who 's been very loyal to a specific brand or even a specific trade for a long time is now starting to have to look around a little bit because they might not be able to get that product or trade anymore, or the price just started going up too high. More builders are looking at other products or brands that they didn't look at previously. So they’re going to try that brand like it or not.
Builder: How can builders reduce material cost burdens?
Sacchetti: Builders can shop around and try to negotiate better pricing by bulk purchasing, if they have room to store materials and they know they have a lot of homes coming up. But they’re locking into a price that could go down.
Many smaller builders don't have as much leverage as the bigger guys to negotiate for exclusive deals directly with the manufacturer to try to reduce their costs. There is another easy solution out there, and it's getting a rebate on a product if it's offered.
Rebate programs are a super easy way to help combat price increases. There are some builders that are getting in the thousands of dollars per home, and there are a lot of builders getting a couple of hundred bucks back per home. It really varies depending on the products they're using.
Builder: How do building product rebate programs work?
Sacchetti: A lot of builders think it's going to be too much work to manage rebates. We try to keep it as simple as possible. We created an online platform where builders can easily claim rebates, while we’ve also got nine in-market specialists located around the U.S. that help connect single-family and multifamily builders to manufacturers.
We have about 60 manufacturer partners, making up about 80 brands, that want to pay a loyalty rebate to builders who are using their product. In our program, there's no cost to the 2,700 builders who use it, and they get access to rebates similar to what national builders might get. So now they're able to mitigate some price increases and earn a little bit of money to increase their margin for products that they're using. Rebates are just the easiest, quickest way to help offset those rising costs.
At the end of the day, it's simple enough that it's very easy to help offset some of those price increases and try to increase their margin a little bit.
For more information about building product rebates for builders, check out HomeSphere.
