Home builders

Philly-area homebuilders continue to struggle even as buyer demand slows

Home builders order from Kieffer’s Appliances in Lansdale before starting. For some products, there is a one-year wait.

“People can’t believe this is going on,” said Jace Kieffer, vice president of the regional retailer. “And yes, we are still at the heart of it.”

Supply chain issues hit the homebuilding industry soon after the pandemic. Manufacturing halted, shipping slowed, and construction briefly halted.

Two years later, manufacturers are still struggling to meet demand. Household appliances, building materials and workers remain difficult to obtain. Construction costs continue to rise. Rising mortgage interest rates are excluding some buyers from deals they could afford months earlier as homes take longer than usual to build.

» READ MORE: Demand is high for new homes, but pandemic-related delays continue to hamper builders (as of 2021)

“We’ve definitely had buyers who have fought over each other,” said Gary Jonas, HOW Group director member and president of the Building Industry Association of Philadelphia.

His Conshohocken-based real estate company plans to put about 40 housing units on the market this fall, including townhouses in the Mantua section of West Philadelphia. This is about nine months later than originally planned.

Nationally, only 38,000 of the 444,000 newly built single-family homes available for sale in April — 8.6% — are complete and ready for occupancy, according to the National Association of Home Builders. That’s down from 10.4% last April.

» READ MORE: New construction boom as homebuyers look to stretch (from 2020)

Normally, builders run into some hurdles, but now, “you name it, we get it,” said Richard S. Van Osten, executive vice president of the Builders League of South Jersey.

“I’ve heard it described as a mole stroke,” he said. One week, the windows are staggered. The following week, the garage doors delay the project. Then a subcontractor doesn’t show up. The problems are relentless.

The price of lumber was a major concern for builders early in the pandemic. This cost has started to come down, but other costs have gone up. The time needed to build houses has shortened but has not returned to normal. Supply chain issues have improved, but not enough.

With supply chain issues, cost increases and government regulations piling up, “it has never been more difficult in my entire career than it is today,” said Bruce Paparone, president of Bruce Paparone Communities, based in Camden County, which has been in the business for 39 years.

READ MORE: Lumber buyers ‘pay or run out’ amid U.S. homebuilding wave

Overall builders are feeling nervous and looking for some stability. Builder confidence in the new single-family home market fell in May to its lowest level since June 2020, according to a survey by the National Association of Home Builders. This is the fifth month in a row that builder sentiment has declined.

Building material costs are up 19% from a year ago, according to the association. Building a house today costs between $30,000 and $40,000 more than a year ago, said Jonas of the Building Industry Association of Philadelphia.

In the city, builders rushed to secure building permits before the end of the full 10-year tax abatement, further straining the already short supply of workers and materials.

“It’s a very, very difficult situation to build on right now,” Jonas said.

Added to these challenges is what he calls the “No. 1 concern” in the long term: security. More than 900 people have been shot in the city this year, an 8% increase from the same time last year, when shootings hit an annual high.

Homebuyers “won’t want to be in a place where they don’t feel safe,” he said.

READ MORE: As Philadelphia’s economy and public health recover, gun violence looms as residents primarily worry

Demand for new homes has started to stabilize a bit, Paparone said, “allowing everyone to catch their breath a bit.”

“We are seeing some of the sales numbers down from the stratospheric numbers that started in 2020 through 2021,” he said.

This spring, builders began to see slower sales, less model home traffic and fewer calls as mortgage rates continued to climb and the stock market crashed, said Van Osten of the Builders League of SouthJerseys. But homebuilding will move full speed ahead at least through the fall as builders work through backlogs and sales contracts from late last year and early this year, he said. declared.

READ MORE: Developers built a record number of homes in one of Pennsylvania’s wealthiest counties last year

Nationally, sales of newly built single-family homes fell nearly 17% in April, hitting the slowest sales pace since April 2020, according to data released by the Census Bureau and the U.S. Department of Housing. and urban development at the end of May.

“As the country needs more homes, home sales are slowing as tighter monetary policy continues to put upward pressure on mortgage rates and supply chain disruptions drive up costs. construction,” said Robert Dietz, chief economist for the National Association of Home Builders. statement.

At the current rate of sales, the total number of these homes available for sale would take nine months to sell, according to the association. Supply is up 40% compared to last year.

Affordability affected demand. A year ago, a quarter of new homes nationwide sold for less than $300,000, according to the association. In April, this share fell to 10%. The national median price for a newly built single-family home was $450,600 in April, up nearly 20% from last April.

Builders sold homes long before construction without knowing how much the costs would rise. They can’t raise prices enough to cover those costs, and profit margins have shrunk. Builders and home buyers are looking forward to more price stability as demand slows.

But with a lack of supply of existing homes, more households forming among members of many younger generations, and the popularity of HGTV shows that celebrate customization, new construction will continue to be in demand.

Following in the footsteps of builders, homeowners are buying appliances before they even know who will build or remodel their homes, said Kieffer of Kieffer’s Appliances.

When a manufacturer runs out of one device, everyone rushes to another. When this one runs out, they turn to another. Etc. “So no one can ever move forward,” he said.

Manufacturers stopped telling suppliers when they could expect products “a long time ago,” he said, because manufacturers themselves don’t know when they will be able to make and ship products.

» READ MORE: Furniture buyers are turning to vintage to find unique pieces and avoid supply chain slowdowns

The “new normal,” he said, is to place temporary devices in homes just to close deals and move in with owners while they wait for the devices they want.

Suppliers hadn’t realized before, he said, “how just in time everything was.” The pandemic has highlighted the fragility of the system as suppliers continue to feel the ripple effects of past manufacturing and transportation shutdowns. During this time, one thing has never stopped: demand.

“This quarter is probably the first quarter where we’re going to see some easing on the new construction side,” Kieffer said. “But for two years, it’s go, go, go. … Continuing to operate like this is quite exhausting.

Kieffer’s Appliances has added 25,000 square feet of warehousing space over the past two years to hold appliances that arrive earlier than expected or are destined for projects that are delayed, Kieffer said. Many dealers have been forced to do the same, he said.

Suppliers thought the situation might improve towards the end of 2021.

“Now,” Kieffer said, “we’re saying maybe in 2023 we’ll see that it starts to improve.”