Builders trying to wait out last year's prices is what led to this year's prices. Anyone looking to do a project with wood in the next 6 months, my advice is buy now.
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OT: OSB at it again
- Thread starter Jeffreauxdawg
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Builders trying to wait out last year's prices is what led to this year's prices. Anyone looking to do a project with wood in the next 6 months, my advice is buy now.
It will be a roller coaster, our plywood order files are two months out. I have never witnessed that much of a lag.
All because Texans get "cheaper Electricity". (FYI it's higher than the average price in Louisiana, a little lower than AL or MS)
They are not losing money on all of those homes, they are just losing profit. My builder has raised the base price of my model in my development 37% since I contracted in September and there is now a huge waiting list. They will be just fine. As much as materials have gone up, labor and land are still the bulk of single family home costs and they have increased much slower than lumber.
As for force majeure, good luck. It was September when we signed the Purchase Sale Agreement. Lumber was at a record high then and we were in the middle of the pandemic. It's a business decision not to pre buy materials or put a POD (price on delivery) or price escalation clause in the contract. I put 10% down and have been patiently biding my time. If they make that argument now, all of the buyers contracted at the new higher prices would be able to do the same when the market corrects later this year.
I have been around this business for a long time with the biggest builders in the world. If force majeure were applied to my build, or anyone else right now, it would open the door to every home buyer that contracted on a house in the past right before material prices tanked to come after a builder. Live by the sword, die by the sword. Builders are getting squeezed this spring and summer, but the worm will turn. Lumber and OSB will correct and be 1/2 to 1/3rd if the current prices within a year. We are reaching labor capacity issues and material production will blow past labor soon enough.
While I am not a lawyer, I still feel 100% confident that every builder worth a lick knows price escalation clauses exist and could easily choose to put them in contracts. They can be lumped in with force majeure. In my particular case, the word force majeure doesn't even appear in the contract. Acts of God does once, but it's entirely about delays in closing.
I replied to a different post, this one is closer to accurate. I think builders have a case on delays, but not on prices unless they have a specific price escalation clause. Buyers probably also have a case at a certain point in delays when it it becomes obvious the builder is holding out for price decreases in materials.
So.....any advice on where this ends? Will prices return? Just like before, I can see a situation where all these new frantic homebuyers end up in a world of trouble because, while they have low interest rates, they have incredibly high mortgage balances that they can't afford. Someone also told me that the bank is not really being strict or foreclosures or missed payments or something like that too. I would also imagine once all this COVID crap moves on, shortages and labor will be normal again, stabilizing prices and then all these houses will be super over-valued, which will end up making these frantic homebuyers upside down in addition to having huge mortgages they can't afford. This all obviously will create another real buying opportunity.
Am I anywhere near reality here?
Am I anywhere near reality here?
A friend sent me a market update on lumber this morning. Here are some highlights:
*This was the busiest week of the year in lumber markets.
*Mills sold everything they offered.
Wholesalers were shut out of the market.
*Distributors were scrambling to cover customer needs.
*Prices skyrocketed.
*Order files pushed out several weeks.
*SYP mills are selling into regions that never use it because it's cheaper than other species.
*Trucking companies are charging $5-6 per mile in some lanes.
*Mills are still having to shutter lines for a week or two with Covid issues because employees are still spreading it to each other.
*SPF is pushed out to July quotes.
*Finger jointed studs are harder to find than kryptonite.
*It's going to be a long spring and early summer.
*This was the busiest week of the year in lumber markets.
*Mills sold everything they offered.
Wholesalers were shut out of the market.
*Distributors were scrambling to cover customer needs.
*Prices skyrocketed.
*Order files pushed out several weeks.
*SYP mills are selling into regions that never use it because it's cheaper than other species.
*Trucking companies are charging $5-6 per mile in some lanes.
*Mills are still having to shutter lines for a week or two with Covid issues because employees are still spreading it to each other.
*SPF is pushed out to July quotes.
*Finger jointed studs are harder to find than kryptonite.
*It's going to be a long spring and early summer.
Thank you for this explanation. It's not exactly what someone looking to build wants to read, but clear. Seems like we'd have more mills. I know there have been lots of closures. Were they able to do more with less at one time? And was resin only produced at chemical plants in Texas?
I have put some thought into this and there are some nuggets in your post that make sense. Here's my take.
Traditionally, buying a new construction house is like buying a new car. You actually pay a premium for a "new home smell" and if you sold it within a year or two you would lose 5-10% because a buyer could likely get there own home built in the same neighborhood with their personal choices.... That is not the case today. But at some point, demand and supply will hit a peak where if you buy, your *** as toast. Unlike 2007-08, I think it will be very market specific on when that is.
We focus too much on interest rates with home affordability. Down payment is usually a bigger factor. Money printing will keep bank accounts flush as ever for a while and inflation means higher wages. Also, existing home owners are sitting on massive equity. Remember, at 20% down, you are levering your down payment 5-1. So a $20k down payment increases affordability by $100k.
Material price decreases will happen, but labor increases and land increases will also come along. It could end up being a wash.
Again, unlike 2007-08, this will not be a national issue. Some markets have so much demand it will take years or decades to fulfill. Albuquerque, Boise, Denver, and Seattle are tied for the lowest inventory in the country. Less than 3 weeks. That's a sign of long-term appreciation in house prices. Other places are tight, but not nearly as much so. Memphis, Oklahoma City, New Orleans, Indianapolis... Those places are in the short squeeze, but it likely won't last. I mean who's packing up for Indy?
Agree with all this, and there is a MASSIVE single family home shortage. I've seen that shortage estimated at 2.5 million. Add to that existing problem, Millennials are an enormous age cohort & coming into peak home buying years.
Indy Metro has grown by 50% over the last 20 years. Im not defending Indy, I have no idea why its popular, but it is.
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The Des Moines metro has grown 50% this century- I get it, its a flyover ag state who wants to live here.
Solid public schools with strong achievement tests, stable low unemployment, low cost of living, etc. It isnt glamorous, but its steady.
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I think there are a lot of these spots around the country- not glamorous, but solid and steady. There is a ton of demand as a result and new construction cant keep up.
I'm not market expert, but the low interest rates aren't going to be around for a while considering how things are going. I am the gc for our build, so I can't lock in my mortgage until my construction loan is complete. The sooner I get done, the lower the rate will still hopefully be. Over a 30-year fixed rate, I will save more money on interest than if I wait for the price of materials to lower. Also, I really want/need to get into our dream home soon. I have shared here before that my wife has cancer. Hopefully she will outlive me, but you never know. Due to her medical issues, we are not able to have children so we will adopt. Where we live now, with two large inside dogs wouldn't be ideal for a baby, so the sooner we can get into our home, the sooner we can adopt. We live in central Hancock county. Not in a flood area, but close enough to the water. Land and housing prices are insane right now. Existing home prices for what we are building for don't even compare. We'd be buying a 15-year old home that is much smaller, and not nearly as nice for what we are building for the same price with little to no land. What we are building on has plenty of land, plenty of privacy and an almost completed pond. The other way I am looking at it is what is the house worth to me? It's invaluable. I don't ever intend of selling, the value will only go up, and it's exactly what we want, so as long as I can afford it, I'm good with it.
Is that good? The Gulfport-Biloxi metro area grew by 60% in the same time period, and that was with Katrina. Austin is pretty much the standard, and they've grown by 78%.
One thing I was not taking into account is that production builders shouldn't have much exposure compared to traditional builders. If you are building on a lot you already have prepped and ready, and you are basically using your own crews, and you have financing partnerships lined up, and you're building a home you have already built a hundred times so you know exactly what lumber you need, you can get hit pretty good, but with the profit built in, if that's your only problem, you're right, it's not going to wipe you out. Of course if a builder is taking deposits on homes it can't start for another three months, the calculation starts to look different.
How much of that is driven by depopulation of the surrounding areas I wonder? I think Indianapolis is probably a pretty strong metropolitan area on its own, but I assume it's probably picking up population from rural parts of the state that are depopulating. Hell, the Jackson MSA is growing slowly but steadily, but I think it's mainly just attracting people from places like the Delta. I suspect a place like Indianapolis is probably picking up residents from rural areas in its state and also picking up residents from people fleeing larger, more dysfunctional cities like Chicago.
Man, gulfport biloxi's data looks funky. Slow growth before Katrina, depopulation, slow growth, a massive spike from 2009 to 2010, and then slow growth. I'm guessing there have to be some data issues there. Maybe they increased the size of teh MSA?
https://fred.stlouisfed.org/series/BLXPOP
ETA: Missed the obvious that 2010 was a census year, so maybe they just undercounted every year and then the census picked up a lot of population they had been missing.
Jackson MSA has the same spike:
https://fred.stlouisfed.org/series/JASPOP
I think that COVID introduced work anywhere attitude could be like the transfer portal. That kind of mobility will mean that metropolitan areas will have to stay on their game to keep people. Piss me off with poor services, high taxes or lack of playing time and I'm moving.
This century...
Chicago metro has grown by 6.8%.
NYC metro has grown by 5.9%.
Detroit metro has shrunk by 11.4%.
San Francisco metro has grown by 3.5%.
Seattle metro has grown by 25%.
Im not sure if 50% growth is 'good' or not.
My point was that Indianapolis has grown a lot in the last 2 decades and I think there are a lot of similar metros that dont sound appealing at first, but end up looking pretty good after research.
As for Biloxi- ok good to know that metro has grown a lot. The high growth there doesnt change the point I was making.
Its interesting that Biloxi as a city has gotten smaller in the last 20 years. There are fewer residents in Biloxi now than in 2000. So clearly all around Biloxi has grown a bunch.
https://fred.stlouisfed.org/series/BLXPOP
It looks like the GBP MSA grew slowly for a handful of years, then crashed because of Katrina for a handful of years, then spiked, and has barely grown in the last decade.
66% growth overall for the MSA this century, but only 7.2% growth over the last decade.
Thats a cool example- its a really wild growth pattern.
This is a really good point- metro growth due to regional flight.
Ill disagree with the Chicago comment since even if its dysfunctional as a city, the metro has grown 7% this century. Tough to say people are fleeing since its mostly built up and growth is naturally slower in developed metros.
In Indiana, rural counties have grown at 2% while metros have grown at 9%.
Between 2010 and 2020, 69 of Iowa's 99 counties lost population. This century, the state population has grown by 10.5%. So clearly a lot of the metro growth is coming from some cannibalism of the rural areas.
Austin TX is insanity. So are 2nd home areas like FL, Gatlinburg, NC etc. Bidding wars for properties like I've never seen.
Agree with all this, and there is a MASSIVE single family home shortage. I've seen that shortage estimated at 2.5 million. Add to that existing problem, Millennials are an enormous age cohort & coming into peak home buying years.
The thought 10-12 years ago was that 2020 would be the year boomers retire en masse and start selling their 4 bedroom homes and moving to Del Webb communities. I actually wrote an article in a trade mag about the percentage of lumber industry folks alone expected to retire i
around 2020. Well, they are somewhat retiring, but they have not started downsizing yet... And millennials are getting the raw end of the deal for sure.
Boomers screw millennials again.***
Buy ASAP Kissinger. Your area is going to explode for years from the Portland and CA exodus.
We moved here last week and are renting for now, but I think we'll be ready put an offer on something this fall. Actually stopped through Boise for a night on the way up and was really impressed with the downtown. Ate at Alavita and got drinks nearby afterward
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Boise downtown is like the world's biggest ski town. Pretty neat. Was Alavita good? So far, good here has been terrible.
Look forward to heading up your direction soon. We may try to hit Silverwood theme park later this summer with the kiddos. I want to play a little golf and check out Hells Canyon too.
I will hit you up when we start making any plans.
Look forward to heading up your direction soon. We may try to hit Silverwood theme park later this summer with the kiddos. I want to play a little golf and check out Hells Canyon too.
I will hit you up when we start making any plans.
Not sure if this is the same data set, but it looks from here like the US has grown by 18.2% this century.
https://www.macrotrends.net/countries/USA/united-states/population-growth-rate
Doesn't really argue against your point, as like you said, heavily developed MSA's like Chicago would presumably see smaller percentage growth, it just raised the question of what kind of growth is "good" over this century for the US. So 50% by Indianapolis would certainly be good. Not sure how 7% for a developed MSA like Chicago should be viewed. I'd be interested to know if CHicago MSA has been growing slower than its birth rate. No clue where to get that info though.
Sounds good. Yeah, we had a nice time at Alavita. Food we got was pretty good, and they had a cool cocktail list. We're both about to start work and will have to cover some weekends, but we should be in the area otherwise. Looking forward to doing some exploring