New home construction may be on the rise, but supply chain is a problem for housing

Hooray, right? After all, we are in the midst of an epic housing shortage, in which home sellers hold most of the power and buyers feel pressured to compete. About 1.6 million homes were under construction in March, according to the US Census Bureau – not far below the peak of 1.67 million in August 1973.

Backorders leave construction in limbo

Here’s the problem: Material shortages are inflating the number of homes listed as under construction. Without scarcity, builders would have already slipped many homes from the “under construction” column to the “completed” column on their balance sheets.

When a house is considered “under construction,” it doesn’t necessarily mean workers are waving hammers. Let’s say a house is nearing completion, but the job site sits silent while the builder waits weeks for the windows to arrive. This house is officially under construction – even though no one is building.

This is happening now. Builders can’t get their hands on enough supplies to finish homes, said Ali Wolf, chief economist for Zonda, a housing market research platform. Shortages of garage doors, windows, doors, heating and cooling equipment, appliances and cabinetry are delaying home completions, Wolf said in an email. And neither the building inspector nor the mortgage lender will let you move into an incomplete house, even if all that’s missing is a garage door.

If you’re a builder and you have everything you need for a garage door except those big springs, you can’t install it. Maybe the spring factory is idle due to COVID-19 shutdowns in China, or maybe the springs are on a ship in the Pacific. When people lament the disruption in the supply chain, these are the issues they talk about.

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Improvement will be a trickle, not a flood

Intrigued by these shortage-driven delays, I’ve concocted an optimistic theory that the supply chain issues will be resolved in a few months, and then we’ll see an increase in home sales at the end of this year. I played my notion in front of experts, who seemed to find it endearingly naive, though they were too nice to say it outright.

Of course, the broken links in the supply chain will one day be restored. And one day, trucks will deliver supplies to construction sites. People will one day move into their new digs that have just been completed. Then, they will resell their old homes to buyers who had been thwarted by a scarcity of homes for sale.

But supply chain repair and its beneficial effects will happen in slow motion, not in surge. It’s not like a ship docked in Long Beach, unloaded all the out-of-stock gates nationwide in one afternoon, and solved that shortage instantly. Even if such a cargo were to arrive, there are a limited number of trucks to deliver the cargo and a limited number of skilled workers to hang the doors.

“I don’t see an inventory flood that would cause any form of value reduction, lower home prices, anything along those lines,” says Michael Nunziata, division president of 13th Floor Homes, a builder based in Fort Lauderdale, Florida. .

A call for patience

It takes time for manufacturers and remote shippers to get back to normal as the pandemic continues to weigh on the economy and the workforce. And that means we’re going to have to wait.

“We always tell our buyers to be patient, we’ll get you there,” says Nunziata. “We want them to move into the house and be extraordinarily happy with the product we delivered to them,” even if that means delays.

Wolf said she expects material shortages to ease later this year and into 2023, along with an increase in home construction. This, in turn, could gradually increase the number of homes for sale, reducing competition among buyers.

Skylar Olsen, senior economist for Tomo, a digital mortgage startup, says she feels compassion for buyers who are being asked to be patient. “I’m hoping that a large influx of new offerings can significantly reduce the price pressure on these housing markets, because that’s unsustainable,” she says.

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Higher rates will reduce competition

When housing markets become more buyer-friendly, what will that look like? Wolf said: “Bidding wars, extremely short days on the market, the removal of contingencies and the sale of homes well above asking price should become less common later this year as the market cools. .”

With those final words – “as the market cools” – Wolf moves the goal posts a few yards. It’s a recognition that we’re not going to get out of this housing market that so unfairly favors sellers. Another factor will bring buyers and sellers closer to equilibrium.

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Rising mortgage rates will be that factor. The average 30-year fixed-rate mortgage rate rose nearly two percentage points from the start of the year to mid-April, when it averaged just over 5%. The higher rates will drive some potential buyers out of the market due to affordability concerns.

If you manage to stay in the market while others are dropping out due to rising rates, you will have succeeded in turning someone else’s bad news into your good news.

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Holden Lewis writes for NerdWallet. Email: [email protected] Twitter: @@HoldenL.