4 new challenges for builders post-COVID

The shortage of home inventory has introduced new pressures for builders
(Photo: Andy Dean Photography | Bigstock)

With housing inventory at less than a month across Metro Denver, builders should be looking at a new-home bonanza. However, the extraordinary demand created by the pandemic has also put extraordinary pressure on supply chains, labor and other aspects of the production cycle. Now, builders are struggling to keep up. At this point, some aren’t even taking orders so the wait list is over 100. Here’s a look at some of the issues that builders are facing.

Supply chain snafus create pricing problems. We have a ton of clients under contract, as do a lot of other realtors. The problem that builders are running into right now is the supply chain delay, and the price of lumber is moving daily. If builders are under contract at $450,000, there’s a greater-than-zero chance that by the time that home is finished, they have lost money. What we’re finding is that some builders are not even allowing anyone to go under contract until they’re at frame, because then they get a better feel for their costs.

[Related: Long-term lessons for a post COVID housing market]

Lending needs long-term outlook. Generally, a builder has a preferred lender, but they’re only looking out about nine months, maybe a year, when considering funding. The problem is that some of these houses won’t even start for a year, then it may take six to nine months to build it, and the buyer risks losing their rate lock. Another challenge is that every time 10 homes are sold, builders raise the base price, which is not uncommon even in a normal market.

Skilled labor in short supply. To meet the demand for new homes, some builders are having to compromise on the subcontractors they hire, and unfortunately, we’re finding that some of these workers don’t have the skills to keep quality high. At these prices, the buyers are livid when trims and finish aren’t perfect.

Blood in the water. The significant gap between the number of houses the market needs, and the capacity that legitimate builders have to construct them, has led to some “briefcase builders” capitalizing on buyers’ desperation. They’re terminating sales and raising prices, backing buyers into corners. That makes it that much harder for honest builders when they’re fighting an unfair perception among buyers.

Now more than ever it is important for home builders, real estate agents and lenders to work together as a team to ensure that all parties’ interests are met as we assist buyers through this exciting but challenging time in our industry. Solid relationships and clear communication seem to be making the difference between a successful transaction versus one with challenges.

Michael Beninati

Michael Beninati is managing partner and owner of Windermere Metro Denver Real Estate. Windermere’s Builder Solutions program provides professional marketing, sales and operational support to builders and developers through all stages of new home sales. He can be reached at [email protected]

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