New home buyers may be surprised to move in and discover their dream home missing its garage door or gutters — and reports of unfinished homes suggest there is plenty of time before the words “supply chain shortage” vacate national headlines.
The ongoing supply shortage and its effect on contractors have shown the heavy toll that’s been placed on the construction industry.
Homebuilders in particular have found themselves caught between a red hot buyers market and a substantial materials shortage. Some have even resorted to intentionally limiting sales in order to reduce pressure on precious supplies.
According to Freddie Mac, the national housing supply shortage has increased to nearly 4 million homes beneath the current demand. Homebuyers are experiencing delays, a lack of choices, and in some cases are even buying homes unfinished.
While 2022 may, with some luck, mark the beginning of the end of the economic challenges caused by the pandemic, it’s clear the construction industry may continue to be hampered by volatile prices, shifting demand, and a fatiguing lack of materials.
At one point, it appeared that some relief for the construction industry was on the horizon. The price of lumber — which had skyrocketed after mills were forced to send workers home due to the pandemic — finally dropped back to pre-pandemic levels of $400-500 in September 2021.
Unfortunately, lumber prices have now shot back up to around $1,200 due to both continued supply chain issues as well as environmental events.
As prices for key materials increase, demand tends to shift to other alternatives. The increased price of lumber, for instance, led some contractors to change to metal studs, which in turn contributed to the increase in the price of aluminum.
Construction firms may continue to face rising costs for their materials. Inflationary pressures and a lack of production have contributed to significant increases in price for a variety of supplies, resulting in projects being held up entirely.
In the last 12 months, the Producer Price Index, one measure of the selling price of producers’ goods and services, has increased for the following materials and supplies (among many others):
- Natural gas +151%
- Steelmill products +142%
- Asphalt +83%
- Fabricated structural metal products +43%
- Aluminum +41%
- Hardwood lumber +37%
- Plastic construction products +33%
- Bolts, nuts, screws, washers +14%
- Paint +13%
Demand for essential materials such as steel and aluminum is only expected to increase as the rest of the economy, including automakers and energy providers, gets back up and running.
In these volatile times, it’s more important than ever for contractors to manage their cash flow carefully to be able to pay for necessary materials, and to secure their right to payment.