Rising Costs of Materials and How Builders are Managing
Attention CFOs- this blog is for you! This week, we are taking a small break from our regularly scheduled marketing content to take a step back to look at the overall operations of a home builders’ business. With the price of materials rising, supply chain disruptions, and a shortage of construction-ready land, home builders have their work cut out for them to continue to meet the rising demand in new home construction. This week we are discussing the current market, the challenges of this unpredictability and how the latest technology and innovative algorithms can help. Let’s dive in!
THE CURRENT MARKET
There’s no question that the housing market has made a strong comeback after its sharp decline in the spring of 2020 due to the COVID-19 outbreak. With mortgage rates at an all-time low, and people forced to work from home, more people looked to home ownership across North America, and home builders have reaped those benefits! Other trends like an all-time low inventory of resale homes have paved the way for home builders to likely have another strong year. Unfortunately, supply is the limiting factor for the success of home builders in 2021. The price of framing sky-rocketed 250% ultimately increasing the price of a single-family home by $35,000. With demand for new homes and home remodeling still on the rise, the cost of lumber continues to soar, narrowing the profit margin for builders.
This sharp rise in the cost of lumber and other materials is driving up costs for builders, and potentially shrinking the pool of buyers who can afford to purchase a home. Although the market is still expected to continue to grow in 2021, things are less affordable due to these supply restraints. Ultimately, the market is hot, and home buyers are ready to purchase. But home builders are facing hurdles that are out of their control.
THE CHALLENGE OF UNPREDICTABILITY
With the price of lumber, cement and other construction materials constantly fluctuating, the market is more unpredictable than ever- and that’s before you add a global pandemic to the mix. The market has gotten more volatile in the last year due to COVID-19 which led to factory closures, a shortage of truckers and other disruptions to the once smooth supply chain. These disruptions have led to shortages in items like windows and faucets resulting in higher costs and delays in many construction projects. All of these delays and extra costs are not only challenging for the builder, but ultimately impact the buyer as well.
And the challenges don’t stop there-- some builders are having a hard time finding land to build on. The housing market was hotter than anyone anticipated, resulting in builders and developers burning through land faster than they’d like! The number of lots available for new home construction are falling, while the demand remains the same. The volatility of the market is definitely a challenge for home builders but the ultimate way to equip your team is-- by leveraging data.
HOW TECHNOLOGY CAN HELP
At OpenHouse.ai, we are passionate about empowering our customers to leverage data to drive their strategic decision making. With predictive analytics, we are helping builders transform data into business insights. The science of predictive analytics is based on utilizing past and current data to reliably and accurately forecast trends and behaviors. Our technology sifts through current and historical data to detect trends, and forecast events to help home builders make the most informed decisions. This sort of data empowers home builder to have a deep understanding of market trends to determine the optimal product mix, ultimately protecting their business from cost erosion and unlocking the highest profits.
By offering deeper insights into development and land selection, home builders will be better equipped to face the unpredictability of the current market. Although our insights dashboard serves as a tool for home builder marketers, we are constantly working to improve our product and release features that would benefit more functions of a home builder’s organization. The future of our Builder Intelligence technology will support home builders in the analysis and predictions for project financing, and provide visibility on portfolio performance. These insights into lot acquisition and development design to help builders stay ahead of the increasing market demand for new home construction. By accurately managing inventory and using data to determine the optimal product mix, home builders can use data-driven strategies throughout nearly every function of their business. As technology leaders in the home building space, we are excited to continue to develop our technologies and make data-driven decision making the norm in home building.
Despite the supply restraints, the market is still on track for growth and builders will likely have another successful year! With strong demand, and current low interest rates, many buyers will still be in a strong position financially to purchase, even with rising home prices. Although the soaring prices of lumbar and shortage of construction-ready land presents a challenge for the industry, builders can better equip themselves for this volatility by leveraging real-time market data. The future of OpenHouse.ai’s Builder Intelligence technology will better support the financial functions of the business to help builders keep up with the ever-changing market, and ultimately protect that bottom line.
- The OpenHouse.ai Team