Home Construction News and Trends
Suppliers, manufacturers, and other vendors up and down the home construction supply chain can expect to feel the pinch, as demand for new housing units stagnates.
Getting Creative About Building Supplies
Fighting a laundry list of challenges—including pandemic disruptions, labor shortages, supply chain issues, and increases in real estate and building materials costs—nonprofits in the homebuilding sector have had to tap their inner innovators to stay on track with their mission of building affordable homes.
Supply chain woes have been hard on Habitat for Humanity, for example. The organization has responded by storing windows, refrigerators, and other materials in warehouses toensure it has the supplies stocked when they are needed. In addition to constructing new homes, Habitat for Humanity repairs properties and does rehabilitation construction—services that have kept it on track despite recent issues.
The organization also has altered some of its strategies as workarounds. It is looking at ideas like “Can we increase density? Can we look at accessory dwelling units? Can we look at compact-size homes that will meet different needs when we think about veterans and the elderly?” Adrienne Goolsby, senior vice president of Habitat for Humanity, told ABC News in Denver.
Thanks to its creative planning, the nonprofit expects to continue its trajectory of building nearly 3,000 homes each year.
If You Build It, Will They Come?
In the aftermath of the housing frenzy that occurred during the pandemic, the country now faces a major slowdown in the housing market. Homebuyers are skittish and demand is cooling, thanks to high inflation and rising mortgage rates. As a result, homebuilding numbers are on the decline.
New housing starts—the barometer of the industry’s health—fell to the lowest level in more than a year, as the U.S. government reported in July 2022 (the most recent data available at press time).
The figure plunged 9.6% month-over-month to an annualized rate of 1.446 million units in July 2022, the lowest since February 2021 and well below market expectations of 1.5 million.
Homebuilders are bracing for more disappointing numbers, as demand for new housing units stagnates. Suppliers, manufacturers, and other vendors up and down the home construction supply chain can also expect to feel the pinch.
A few additional stats from the government’s July numbers illustrate the sector’s current shaky status.
- Building permits were slightly above expectations at nearly 1.7 million, but fell about 1.3% from June and are down from about 1.8 million in April.
- Housing activity could fall roughly 30% or more over a multi-year period in a worst-case scenario, Fitch Ratings predicts, pushing home prices down between 10% to 15%.
- In one bright spot, permits for multi-family units rose 2.8%, helping to offset the steep 4.3% drop in the single-family sector. Lower lumber prices and still-high rents may incentivize builders to construct more multi-family units.
California Here We Come
Home improvement retailer Home Depot is making moves in Southern California. In April 2022, the company leased a 1.1-million-square-foot warehouse in the Inland Empire region, and just announced it is taking another 529,866 square feet in a new building in Irwindale, California. The new facility, according to Duke Realty, is decked out with the latest proptech for managing indoor conditions through digital interfacing, and for meeting electricity needs through solar power.
Home construction requires a lot of steel, a commodity that has been heavily impacted by the ongoing war in Ukraine (the world’s third-largest steel exporter), as well as COVID-related supply chain instability in China (the world’s largest steel exporter). As such, there’s no clear consensus on what path steel prices will take. Here’s some food for thought from manufacturing platform Metal Miner:
“With the war affecting trade so dramatically, normal metrics for evaluating the steel market no longer apply. As we stated several months ago, the steel market seems to have moved away from traditional supply-and-demand-based predictability. Instead, economists are rushing to produce new models that better reflect the 2022 marketplace. For now, it’s a waiting game being played by some very stubborn participants.”
Market Forecast: Cloudy, With a Chance of Sun
A recent overview of the construction materials market by FMI Capital Advisors paints a murky outlook for the near future. While clouds roll in from an economic downturn brought on by historic levels of inflation as well as interest rate hikes and supply chain constraints, there are some reasons to expect some sunny upsides peeking through.
Two mitigating factors are keeping recession impacts at bay for the construction materials market, FMI Capital notes.
1. Committed federal funds from The Infrastructure Investment & Jobs Act (IIJA) bill will help to keep the construction industry moving forward.
2. Construction is a local industry, so some of the individual and unique markets where producers operate may remain strong.
Here’s a breakdown of FMI’s overall predictions:
- Inflation has increased energy and steel prices, which hurts construction materials producers’ profits. Producers who pass on increased costs to customers will fare much better than those who cannot.
- Interest rate hikes are a necessary evil to set prices back to sustainable levels. The increases mean that home borrowing costs will increase significantly (a negative effect on home construction) and financing equipment through loans will continue to become more expensive.
- The strained supply chain directly impacts the construction materials sector as it pertains to equipment purchases. The expected easing of supply chain constraints should allow producers to get much-needed equipment in a timelier fashion.
- M&A activity: Buyers remain active and are willing to pay premium valuations for strategic targets in attractive markets.
Raise the Roof!
Materials producers and homebuilders worried about roofing costs and energy use can take heart from a new ICF International study that details how upgrading to energy code-compliant roof systems substantially reduces whole-building energy use. This, in turn, leads to decreased energy costs and carbon emissions which, the study says, pay for themselves many times over during their expected service lives.
Some key takeaways from the roof replacement study include:
- Even when subject to higher incremental installation costs and discount rates, roof replacements are life-cycle economical under various conditions.
- Through a significant reduction in natural gas fossil fuel use and overall improvement in energy efficiency, roof replacements support the transition to building electrification.
- By offering a cost-effective tool to help building owners reduce energy use and lower carbon footprint, roof replacements support building performance standards and carbon emissions reduction goals.