Hurry up and wait
MABA president explains COVID-19’s impact on homebuilding.
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Danny Lowery, the 2021 president of the Madison Area Builders Association (MABA) and Tim O’Brien Homes division president, Madison, recently shared some insight into the new-build market. With an 18-year career in residential construction, he characterizes the current state of homebuilding as “strong and healthy, but very chaotic.”
How would you explain the past 18 months?
When COVID hit, there was a lot of fear. Lumber suppliers pulled back on production, but the market reacted differently. People were stuck in their homes 24/7 and many of them either started to remodel or decided to move. It went the other direction very quickly, which tightened supply.
How is the cost of lumber affecting home prices?
A year ago, a typical lumber package on a new, 2,000 to 2,200-square-foot home averaged about $25,000. In May, that same package costs over $90,000! That’s been the challenge for the builders, and it’s not just lumber. Electrical wiring is up 300% as well. Framing suppliers can’t guarantee a price for more than 15 or 30 days out.
The process from contract to move-in is taking about seven to nine months now. Pre-COVID, rarely was it longer than six months. Some contractors are scheduling into the spring of 2022, and that’s mostly due to labor supply.
Are “estimates” a thing of the past?
It certainly makes estimating tough. No builder wants to overcharge the buyers, but nobody wants to hedge their bets, either. Some buyers might end up with a $10,000 or $15,000 overage at the end of the build.
Will prices settle down, in your opinion?
I think some things will come down, but in my experience, when spikes in materials like lumber aggregate into the total price of a home, rarely do they come back down. Lumber prices might drop but then other things, like drywall or insulation, might rise.
The market demand remains strong! Listings of existing homes have dropped roughly 40% year over year driving some buyers toward new homes, and low interest rates are helping. After a good, competitive market analysis, a lot of people are shocked by their purchasing power.
Is the industry concerned about inflation?
Inflation is definitely a concern. Coupled with rising interest rates it could slow things down. We need to get people back to work. We did a study once that showed that well over 1,000 different jobs were touched per each home built on average. That may not all be local, but it speaks to the industry’s huge economic impact.
What’s the answer?
Larger developments make the most economic sense because of raw land and land development costs. Dane County needs a lot of homes. We need land and we need more sellers. COVID definitely tightened the screws.
Before the Great Recession, about 3,000 lots a year were being developed across the county. That’s been reduced to about 1,200 to 1,300 single-family homes or duplexes per year. Madison has always been a strong seller’s market, but the number of lots either platted or titled has barely kept pace with the number of permits we’re pulling. So there’s a supply issue on the land side as well.
Will the demand for new homes continue?
I believe it will remain strong. Unless something crazy happens, the market demos are there for new housing for at least the next three to five years. There’s just too much demand now, particularly from millennials.
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