Rising Costs, Supply Chain Challenges Continue to Hinder Home Building
Builders are reducing SKUs in an effort to work around continued supply chain disruptions.
Amid a period of robust home buying demand, supply chain disruptions are hindering companies at every stage of the home building process, creating backlogs and shortages across the country. Raw material prices are having a direct impact on home price appreciation, with the NAHB estimating lumber price increases have added $18,600 to the price of an average new single-family home since the fall.
“The biggest concern continues to not come from the demand side, they come from lead times, from building costs, and overall labor availability,” Zonda chief economist Ali Wolf said on the company’s January COVID-19 Update webinar.
Lengthy Timelines and Missing Parts
Continued supply chain disruptions are pushing construction timelines for builders. On a recent earnings call, PulteGroup president and CEO Ryan Marshall shared that lead times for order fulfillment have gone from six weeks to 16 weeks for some products, with limited options for substitutions.
KB Home executive vice president and co-COO Rob McGibney said the company has developed methods for continuing to progress homes despite missing parts and expanded construction timelines.
“Garage doors are one of our biggest challenges, and there are still real issues around garage doors that we’ve taken some actions to minimize the disruptions from that through finding alternate suppliers or manufacturers,” McGibney said on the company’s most recent earnings call.
Limited Choices, Improved Quality
“I think customer sentiment has changed, and, although they do want customization, it doesn’t have to be every single feature in the home,” Benavidez said. “I think it’s important for us to think about what we’re offering our customers, and those options that don’t have high take rates, remove them.”
Mike Farmer, president of commercial solutions at Builders FirstSource, said the reduction in SKUs may become the “new normal” and a way to keep housing prices down.
“The inflation we’ve seen over the past several years, we’re going to have to find ways to be efficient in the industry,” Farmer said on Zonda’s BPM webinar. “I think if we can reduce options in areas where no one really cares, where it’s less of an issue to the home buyer, to improve the inventory and the supply chain, we should continue to do that.”
Diversifying Sourcing and Communication
While limiting options is an emerging solution for builders, diversifying supply options has become a supply chain workaround for manufacturers suffering from constraints.
For Builders FirstSource, Farmer said communication with builder customers has become increasingly important as a way to keep costs down for the dealer.
“We’re looking more into how to ship products in full so we’re not having to go out to a jobsite four, five, or six times and spending more time on the phone,” Farmer said. “I think being smarter about how we’re doing things and communication is one of the ways to help stem the costs that are out there.”
Wolf said the expectations are that the supply chain will improve in the latter half of 2022, but improvement is contingent on several other factors, including labor and trucking capacity.
“It’s my expectation that the supply chain will get better with time,” Wolf said. “Yes, [the supply chain will improve] over time, but not in the next two to three months.”