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Home builders are facing all sorts of supply chain issues that are contributing to higher prices and construction delays. Some are hoarding supplies in rented warehouses while others are putting in ghost orders for projects that don't exist yet. Whatever magic tricks they have to perform, they are running into problems right up to the finish line, including the almost impossible task of finding a garage door.
Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.
No Garage Door
The dilemma facing builders prompted a recent headline in the New York Times that reads: "4 Bed, 3 Bath, No Garage Door: The Unlikely Woes Holding Up Home Building." (1) Rick Palacios, Jr. of John Burns Real Estate Consulting told the Times: "Garage doors are a nightmare."
The article says that almost everyone is having a difficult time getting garage doors right now, and that prices have doubled or tripled for those doors. Plus, it could take several weeks to get one. Builders who used to order them a few weeks before a home is finished are now ordering them before they break ground.
It's crucial to get that garage door in place. In many places, a new home won't pass inspection if it isn't completely finished. And that brings the project to a grinding halt including buyers who can't move in, and builders who don't get paid.
A developer working on one of our RealWealth syndications in Reno says he had to buy a truck specifically to pick up materials wherever they can find them, even if it meant driving to Denver. He says the company he was working with locally hasn't been able to get any garage doors for months now and had to lay off their entire work force. That company is now filing for bankruptcy.
In one of our residential developments, our team was able to negotiate with the city to close on the home without a garage door, so that families could move into their home.
Garage As a Necessity
The garage is seen as a necessary part of a home in most parts of the country. And with many people moving farther away from cities because they can work remotely, the car becomes even more important, along with a garage to house the car and the garage door. Many people use the garage as their main entry into the home.
The Times says that 9 out of 10 new single-family homes had one in 2020. The article had photos of homes that were otherwise done except for the garage door, which is covered with plywood. Some builders are installing cheap, temporary doors until the better ones arrive. But it's not what new homeowners want to see as they do a walk-through.
The difficulty getting a garage door is a final gotcha moment for builders who've already been doing a tap dance to get the materials they need. Along with a materials shortage, prices have gone up by at least 50% for most things. Erin Roberts of Ernst Young told Construction Dive: "It's as bad as any time during COVID." (2)
Skyrocketing Prices, Delays
The Associated General Contractors of America says prices for steel mill products have gone up the most in the last year. They're up 112%. Prices for steel pipe and tubing are up 78%. Plastic construction products are up 35%. Lumber and plywood are up 21%. The list goes on.
And then there are the delays in getting those more expensive supplies. Roofing materials, steel bar joists and metal decking are all taking 8 to 10 months. Aluminum windows, structural steel, and metal studs are taking almost as long. Construction Dive says that roofing materials are "as scarce as hen's teeth."
Peter Guffo of Boston-based Suffolk Construction's South Region told Construction Dive: "We're at the point now where we're warehousing materials, and getting them wherever we can. If you have to move it twice, you move it twice." He says the cost of moving supplies twice is much less than not having those supplies and halting construction.
The New Supply Chain Setback
Now, the Russian invasion of the Ukraine is throwing another monkey wrench into supply chain slowdowns. As the U.S. and other NATO countries impose economic sanctions, and global companies cut off trade with Russia, there are new supply chain issues to deal with. (3)
One of the big ones is oil. Russia is the world's third-largest oil producer, and supplies about one of every ten barrels of oil used by the global economy. Losing that oil supply is raising the price of oil elsewhere and that's increasing costs for production and transportation.
Russia also provides about one fifth of the world's supply of natural gas. Both Russia and Ukraine are major players in the export of wheat, corn, barley, and fertilizer. Some materials and metals used by the semiconductor industry also come from Russia. Flight diversions and cancellations have put pressure on cargo space which is causing new supply chain delays.
Those issues may not directly impact U.S. homebuilding, but they add to the increasing complexity of getting supplies produced and delivered from point A to point B at a reasonable price. As Construction Dive points out, "it's anyone's guess" as to when the supply chain snarls will end.
ABC's chief economist Anirban Basu says: "It may seem naive given current data readings, but the expectation remains that, at some point later this year, construction materials prices will moderate."
Other industry insiders are not so optimistic. They say they don't see any relief until the end of this year or longer.
If you'd like to read more about this topic, you'll find links in the show notes for this episode at newsforinvestors.com.
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Thanks for listening. I'm Kathy Fettke.
Links:
1 -https://www.nytimes.com/2022/02/15/upshot/homes-garage-door-shortage.html
2 -https://www.constructiondive.com/news/hoarding-ghost-orders-and-pop-up-warehouses-constructions-new-supply-cha/619131/
3 -https://www.nytimes.com/2022/03/01/business/economy/ukraine-russia-supply-chains.html
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