As if low inventory wasn’t exerting enough pressure on home prices, two new trends are apparently are adding to the surge — particularly for new houses.
The National Association of Homebuilders and the National Association of Realtors said a lumber shortage is accelerating the cost of new-home construction while there also is a rising demand for larger houses — partly as the result of more stay-at-home and work-from-home time created by the pandemic.
“While the market remains solid, median home prices are increasing due to higher building material costs, most notably softwood lumber, and a shift to larger homes,” said Robert Dietz, chief economist for the National Association of Home Builders.
And resale homes may not offer an escape from that trend because of the steadily shrinking inventory.
The median sales price nationally was $355,900 in December — up from $329,500 a year earlier.
The Cromford Report, which closely monitors the housing market in the metro Phoenix area, said demand for new and used houses “is still on a downward trend.”
But it cautioned that the trend “has had almost no benefit for buyers as supply is dropping to unprecedented lows across large parts of the valley.”
“Demand would have to collapse for some semblance of normality to return to this market,” Cromford said, citing a growing chasm between inventory and demand” all due to a worsening supply.
A case in point was Avondale, where inventory has plummeted to almost nothing.
With only 20 listings, Cromford said, Avondale “is a city of about 85,000 people which, in a normal market, would expect to have about 340 single-family homes for sale. There were 1,100 single-family homes listed in Avondale during 2007. Supply has dropped in half since Jan. 8.”
“So, if there were no new listings,” Cromford continued, “the current stock would sell out completely in less than six days. I am starting to wonder if inventory could go to zero in places like Avondale.”
Similarly, Cromford reported, Maricopa had only 62 single-family houses for sale. Normally we would expect over 400,” Cromford said. “Demand has remained strong in Maricopa with over 2,200 single-family closings a year. There are 10 days of inventory.”
Cromford said inventory is critically low in other small communities — as it is in large Valley cities — particularly Anthem, Arizona City, Carefree, El Mirage, Florence, Litchfield Park, Sun Lakes, Tolleson, Tonopah and Youngtown.
Meanwhile, new pressures are being put on homebuyers in the form of rising lumber prices.
The homebuilders group reported that in the first six months of the pandemic “lumber prices soared more than 170%.
“This unprecedented lumber price spike added nearly $16,000 to the price of a typical new single-family home,” it said.
The homebuilders association recommended that its members include an escalation clause in contracts “that indicates if lumber prices increase by a certain percentage, the customer would be required to pay the extra costs.”
It also said the sharp increases in lumber costs “threaten the affordability of new homes and the housing sector, which is leading the nation’s economic recovery.”
The association blamed the lumber cost increase on inadequate domestic production.
“Many mills reduced production due to stay-at-home orders and social distancing measures enacted by state and local governments at the onset of the coronavirus pandemic,” it said recently. “Mill operators projected that housing would be adversely affected by the crisis and anticipated a large drop in demand. But housing weathered the storm much better than was predicted and demand for lumber has accelerated.”
In December, it called on the Trump administration to pressure domestic lumber producers “to ramp up production to ease growing shortages and making it a priority to work with Canada on a new softwood lumber agreement.” That request went nowhere.
All this comes at a time when more millennials and Gen Xers are looking to buy a house — and when more are looking to buy new, the homebuilders group said.
In a survey of more than 15,000 prospective buyers, it found “a significant shift in interest for newly-built homes during this period among prospective buyers,” doubling to 41% of buyers in December from a year earlier.
“On the other hand,” it added, “the share interested in an existing home declined from 40% to 30%, while the share indifferent to either type of home fell from 41% to 29%.”
“When broken down by generation,” it added, “results show that 50% of Millennial and 48% of Gen X buyers are looking to buy a new home. In contrast, 50% of boomers and 38% of Gen Z buyers would prefer to buy an existing home.
Those preferring new dominated survey respondents in the Northeast and West.
New-home sales in 2020 posted an 18.8% increase over 2019, the U.S. Department of Housing and Urban Development and U.S. Census Bureau reported in December.
The National Association of Realtors Chief Economist Lawrence Yun said that while closings have dipped, “I would attribute that to having too few homes for sale.”
“There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings,” he said. “This elevated demand without a significant boost in supply has caused home prices to increase and we can expect further upward pressure on prices for the foreseeable future.”