Homebuilders are constructing fewer homes … on purpose

Amy Scott Jul 29, 2021
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Despite a hot housing market, new data from Zonda show that 85% of homebuilders are intentionally capping their sales. Justin Sullivan via Getty Images

Homebuilders are constructing fewer homes … on purpose

Amy Scott Jul 29, 2021
Heard on:
Despite a hot housing market, new data from Zonda show that 85% of homebuilders are intentionally capping their sales. Justin Sullivan via Getty Images
HTML EMBED:
COPY

The U.S. is awash with numbers about the housing market. If only it were awash with houses.

Pending sales of existing homes — deals under contract that haven’t closed — were down about 2% from May to June, according to data released Thursday by the National Association of Realtors. Apparently, stratospheric prices driven by a shortage of available homes are dampening enthusiasm to keep up the hunt.

It’s a similar story for new homes. Sales of those fell almost 20% in June from the same time last year. Would you believe some of that decline was intentional?

If you’ve been shopping for a house and haven’t already gone mad, this might do it: Homebuilder Pulte Group reported $500 million in quarterly profit this week and CEO Ryan Marshall told investors it could’ve been more. “We purposely restricted sales through lot releases or similar actions in roughly 75% of our communities across the country,” Marshall said.

The company sold fewer houses than it could have. On purpose.

“You could pick the phrase: it’s metering, it’s throttling, it’s intentionally slowing sales,” said economist Ali Wolf with research firm Zonda. According to Wolf, 85% of home builders are doing it. Given shortages of land, labor and materials, she said they can’t build houses fast enough.

“A builder could choose to sell a lot of homes, but then they’re going to have really unhappy customers who said, ‘You told me this would take eight months to build, why is it taking 12 or 13 months?’” Wolf said.

Builders feel it’s better to disappoint would-be customers than really tick off people who’ve already given them their money.

Plus, there’s the cost of building. Although lumber prices have come down, things like plumbing fixtures and appliances keep going up, according to Rick Palacios, Jr., head of research at John Burns Real Estate Consulting. That makes it risky to set a price today for a house that won’t be done for months.

“So what they’re doing is they’re waiting longer in the construction phase to actually price that home and put it up for sale because of how volatile the costs are,” Palacios said.

There is hope for frustrated buyers. Zonda’s Wolf said fewer builders are throttling sales now than they were last month. She expects backlog to clear sometime next year and new homes to start coming onto the market at a faster pace.

Once that backlog is clear, we’ll only be short somewhere between one and four million houses.

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