This one is a little long but completes the stage for our future insights into your homestead. Please read this one to the end. It’s 1,200 words that matter. Have some coffee and dig in.
Well, it is my hope that the “canary” metaphor took root. Furthermore, the idea that I’m one of your canaries. To that end, how am I doing? Good question; because how I’m doin’ correlates pretty well with how you’re doin’. Frankly, I’m grippin’ the perch pretty tight! Justifiably, all of my clients are cautious to say the least. So, this is what we’re seeing right now, uncertainty. Uncertainty is as difficult to navigate as a full blown poop storm. Uncertainty causes us to hesitate and question our decisions. That causes us to stall progress because we fear a “bad” decision or unforeseen outcome. Yet, regarding our homestead, the need we may be addressing continues to exist and may even grow. This may be more children, less children, consolidation of our nuclear family under one roof or something more elective. Right now, I’m speaking to those of you who have a home. We like to call it a ‘Golden Ticket’.
In my last installment, I generally outlined the challenges the housing industry is experiencing. Those would be:
- High Property Acquisition Costs
- High Material Costs
- High Labor Costs
- Elevated Interest Rates
Whether anyone says it out loud, the home building industry is in critical condition. Let’s take the major culprits one at a time. High Property Acquisition Costs are here to stay for a while at least. Keep in mind I’m discussing this from an Atlanta Metro vantage where values are astronomical. However, they are high nationwide. The further out you get from a major metro, the better they look. But, you make trades with commuting and ready access to some services. We see this greatly as a product of Private Equity. Significant percentages of available homes were scooped up following the ’09 economic face plant. This is a huge topic on its own and has been quantified very well by reputable journalists and tracking groups. Bottom line, it won’t get better for a very long time. Not unless they (private equity) decide to take loss. Yeah, right. This is greatly why many of you have a golden ticket. You have a home, in a desirable area, often with a fabulous low interest mortgage. However, you’re at odds with doing anything to your home that may upset that fabulous low interest mortgage. Good thinkin’! Your right. What many of you have discovered is that there are no cost-effective “lateral” moves in real estate right now. It is in your best interest to stay put and work with what you have.
High Material Costs is a different animal. As planners, customers always ask us to project what their design might cost to be built. Right up to Covid, we could give you some pretty accurate ranges based on floor area among other indicators. During Covid, prices jumped as much as 400%! That was a Maalox moment. Then WHOLESALE began to fall precipitously until it reached numbers closely akin to how it would look if Covid never happened. So, why didn’t retail fall commensurately? Another good question. Many of us like to call it “greedflation”. Nasty, but addressable. We’ll catch up on that in time. Now, new systemic influences, like tariffs, add a whole new and unpleasant dimension to materials costs as we import much of what feeds our industry.
High Labor Costs is a topic of significance because, to some degree, labor should have gone up a long time ago. We’ve been paying less and less for skilled labor. It takes talent, experience and overall good health to perform most of what is needed in erecting any structure, especially a home. Inadequate wages, long hours and physical stress have thinned the ranks of those needed to fulfill America’s housing needs. A living wage, together with quality training and basic benefits such as healthcare are the starting place to rebuild our workforce. Although the industry has awakened to his reality, it will take time for measurable results. Perhaps several years at a minimum.
Last is the easy one, Interest Rates. My generations (Boomers) enjoyed a decade with interest rates in the 15%+ range. Not only did we survive but many thrived. The cost of labor and material was achievable. You simply needed to determine what you were willing to pay for the time value of money. Where rates are now at 7%-ish is not horrible. We have been spoiled by 2.75 to 3.25% interest used to forestall a crash. It worked but is not sustainable. Hence, we’re back addressing reality, face to face. The music had to stop at some point. If you own a house with one of these mortgages, you had a chair at the end of the music. We prefer to say a ‘Golden Ticket’. Congratulations! Now what!?
Two elements are greatly out of your control, High Property Values and High Labor Costs. Elevated Interest Rates are a fact of life but very predictable. This leaves High Material Costs. They will respond to the market. You are the market. Your greatest tool (dare I say weapon) is patience. We all know the old adage, “Measure twice, Cut once”. Effectively, think before taking action. Planning is your control in concert with saying “no”. Shortages have caused people of means to fall into a bidding war of sorts. If you want it bad enough, and lack patience, how high will you go? It simply is not sustainable. Having fewer players (qualified builders) tend to hike costs in a classic supply and demand dance. This is not necessarily the builder’s doing but often the supply distributors. Reduce demand and material prices will fall in time; less time than you think. In the interim, plan. This is good advice and also self serving as I am a planner by vocation. It’s still good advice. Planning on paper is just smart. It’s affordable and moves at your pace. A good design, depending on the scope of the work, can take up to a year. Make this window work for you. Once you achieve a design that fulfills your vision, then and only then, can you start to evaluate construction costs that are realistic. Without well prepared plans, estimates are generally disingenuous. (a $2 word for B.S.) After you have a solid plan, THEN you look for builders. Builders, plural. Bring back competitive pricing. A good quote from plans takes as much as 6 weeks. You’ll need three to make a good decision. You may Also have to pay for the quotation as it costs a reputable builder quite a lot to assemble. It’s worth it. A number some hammer mechanic pulled out of their…ear our without plans is useless and loaded with land mines. Be patient. Take control. Plan your way through this time and be ready when the market rebounds. Those without a good plan won’t have a chair.
Until next time, build a realistic vision and explore your options. Plan
