Across the United States, house prices are skyrocketing, bidding wars are the norm, and supply is scarce than ever. Now the market is too hot even for home builders.
Demand is so feverish – and construction costs are climbing so rapidly – that overwhelmed builders are cutting orders and abandoning fixed prices. Companies such as DR Horton Inc. and Lennar Corp. are experimenting with blind auctions in areas such as Texas, Florida and Southern California. Some small businesses have stopped signing contracts altogether.
“We halted sales until the homes were almost finished,” said Greg Yakim, partner at CastleRock Communities, a private builder in Texas. “We have huge waiting lists.”
In a global economy tormented by supply shortages, the US real estate market is grappling with a collision of pandemic forces holding back new inventory when it is needed most. Buyers battle for new homes as remote work increases employment, while soaring lumber costs and a labor shortage slow construction. The result is that house prices are already reaching levels unaffordable for many Americans are expected to continue to rise.
Home builders are stationed where they need to be, in cheaper cities and suburbs where buyers are heading for more space and job changes. But they wait as long as possible to take orders because delays are frequent and future costs uncertain. And why lock specific prices into contracts when they are likely to be much higher once the houses are finished?
“They sell homes for as much as they can get, just like all the home sellers in America,” said John Burns, a national construction consultant in Irvine, Calif.
About 19% of builders are delaying sales or construction and 47% have added indexation clauses in contracts, allowing them to raise prices as costs rise, according to a survey in April by the National Association of home builders. westarts fell 9.5% last month, government data released this week showed, suggesting the industry is held back by supply chain constraints.
Builders are so overwhelmed with the backlog and current demand is so strong that they must slow sales or force buyers to raise prices, said Vaike O’Grady, regional manager in Austin, Texas, of the company. of real estate consultancy Zonda. . About 63% of respondents to a national survey of the industry by his company said they limit the number of contracts per project they sign each month.
“It’s something we’ve never seen,” said O’Grady, who has worked in the industry for 30 years. “The builder’s job has changed from trying to sell houses to trying to build houses.”
Businesses face delays on everything from stone slabs to kitchen cabinets and appliances. As a result, homes take about a month longer to build, according to Alex Barron, home construction analyst at the Center for Housing Research. Lumber prices have climbed up to four times in the past year, although they have has fallen in recent weeks as traders speculate that costs have risen so much that they will drive down demand.
These changes mean builders are turning more frequently to speculative homes built without a buyer, Barron said, so they can get the top price by only listing when the homes are almost ready.
Some are also following an increasingly common practice in the existing home market: set a quick deadline for submissions, then choose the best one.
“We are very happy to announce that we now have homes available in the final stages of Pioneer Crossing East!” Wrote DR Horton, America’s largest builder, in an email to local agents in Austin on May 3. , giving buyers one week only. “Please note that due to demand we expect to receive multiple offers on many of our properties and we advise clients to submit their highest and best offer.” A representative for DR Horton did not return any messages seeking comment.
Lennar takes a similar approach for some projects. A recent email to brokers in Florida promoting their Babcock Ranch project in Punta Gorda said the builder “will be bidding on certain homes in this community rather than posting a specific sale price.”
Lennar said setting offers is beneficial for homebuyers who would otherwise sit on waiting lists and not be able to bid on a home.
The company’s bidding program “gives everyone a fair and equitable opportunity to bid on the right home for their budget,” said Darin McMurray, president of Lennar’s Southwest Florida division.
For a buyer who succeeds in making a deal, the terms may change. Some contracts in the Atlanta area now have exclusion clauses for builders and buyers, said Trish Byce, a local agent and former home builder.
“The builders can’t give you a firm price today,” Byce said.
In Texas, the land of the great outdoors, builders suddenly run out of land. Pandemic migration has brought out-of-state buyers with large bank accounts crowding out locals with outrageous bids, especially in the state’s two most popular markets, Austin and Dallas.
Texas-based builder Highland Homes now has about three homes per community at the start of each month, especially in hot areas like Austin, said Aaron Graham, senior vice president of the company. The builder doesn’t want to be overwhelmed with business, as buyers already in the pipeline need attention and it takes time to replenish lots, he said.
Highland’s waitlist in an Austin community has reached 140 with only 10 lots available. The company has increased its prices by about 25% from a year earlier in the city, which has seen an influx of technology. workers like companies like Oracle Corp. leave the west coast.
“At the start of the month, we vacate our homes and start at the top and go down the waiting lists,” Graham said. “Sometimes the prices have gone up and the prices have gone down.”
It took three offers for Kenny Albert and Caitlin Mack before they could win a contract for a house in the Tiermo community of DR Horton, about 12 miles east of central Austin. In their first offer, they offered $ 17,000 off the starting price of $ 330,000 and were told “you weren’t even close,” said Albert, 26.
They were turned down for another home two weeks later and finally struck a deal this week, offering about $ 14,000 more than the asking price of $ 321,640. “I think it was pure luck, honestly,” Albert said.
Some buyers have asked small local builders to cancel deals even after contracts were signed or to ask for more money, said Ram Konara, a real estate broker in Dallas. His clients continue to lose bid wars for existing homes and it is even more difficult to find a newly built property, he said.
“Some builders don’t even open the doors of their model homes to buyers,” Konara said. “There’s no point in opening the door. If there is a house right now, it will sell within the hour. “
– With the help of Marcy Nicholson