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In an uncertain housing market, home builders face a range of challenges

Justin Ho Nov 26, 2024
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Inflated costs and low labor pools are making home building challenging. Jim Watson/AFP via Getty Images

In an uncertain housing market, home builders face a range of challenges

Justin Ho Nov 26, 2024
Heard on:
Inflated costs and low labor pools are making home building challenging. Jim Watson/AFP via Getty Images
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The number of new homes sold in October fell significantly, according to the Commerce Department; sales were down more than 17% from September and almost 10% from the same time a year ago.

Some of that weakness was expected, since parts of the south are still recovering from Hurricane Helene and Hurricane Milton.

But the market for new homes is still being weighed down by a number of other issues. Home builders are facing shortages, high costs and a whole lot of uncertainty.

A big challenge that home builders are dealing with is the amount of available labor. Danushka Nanayakkara with the National Association of Home Builders said the industry has more than 250,000 open positions it’s trying to fill.

“We have an aging labor force,” Nanayakkara said. “We need young people to go into trade schools. We need to attract women to come into the trades.”

Nanayakkara said that shortage pushes up construction costs. Construction materials, including electrical transformers, are also in short supply.

“We have seen record high price growth in the last few years because we don’t produce enough, domestically,” Nanayakkara said.

And then, there’s the sheer price of new homes. Charlie Dougherty, senior economist with Wells Fargo, said home builders do have some tricks they can pull to take the edge off sticker prices, including mortgage rate buydowns and other incentives.

“But at the end of the day, mortgage rates are elevated, and I think that just discourages the homebuying process overall,” Dougherty said.

Some of these issues have gotten a little better recently. Mortgage rates are lower than they were this time last year.

And Dougherty said material prices have started to calm down.

“Right, they’re still very elevated compared to where they were, say, back in 2019, but the pace of growth has been fairly steady, and to the benefit of homebuilders, more predictable,” Dougherty said.

One input that’s actually gotten cheaper recently is lumber.

Greg Kuta, CEO of Westline Capital Strategies, said prices are down more than 70% since their recent peak about two and a half years ago.

But Kuta said remember, we get a lot of our lumber from Canada.

And if the new Trump administration raises tariffs on imported Canadian lumber, guess what? Prices rise.

“From an industry that needs demand, that’s the homebuilder industry, the softwood lumber industry, it’s definitely tough to say that an increase in tariffs is going to benefit the consumer,” Kuta said.

Especially since right now, Kuta said, homebuyers can’t really stomach any more price increases.

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