Homebuilders face further inflation headwinds
D.R. Horton co-COO Michael Murray says costs are 'increasing across the board'
U.S. homebuilders face further cost pressures heading into next year, according to D.R. Horton, the nation's largest homebuilder by market capitalization.
Headwinds from higher lumber prices are expected to persist into the end of this year before beginning to taper off early next year. But the industry will still be met with higher prices for other materials and land.
"We're seeing costs really increasing across the board," said Michael Murray, co-chief operating officer at D.R. Horton, which builds homes that cost anywhere from $150,000 to over $1 million. "Even when we see perhaps some relief from lumber, as we move further into fiscal '22, I think that will be offset by other cost increases."
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Lumber prices soared by as much as 316% from the start of 2020 through the middle of this year due to the supply chain bottlenecks and strong demand for building projects that developed in the wake of the pandemic. The higher prices added as much as $36,000 to the cost of building a new home.
Random length lumber futures have since pulled back by 65%, but builders have not yet seen relief as they are still working through inventories that were built up when prices were at higher levels. Prices are still 60% above where they were prior to the pandemic.
While lumber prices have pulled back, the costs of other key materials used by builders have skyrocketed as materials shortages have developed. Categories seeing the biggest impact nationally include engineered wood, windows, glass doors, paint and vinyl siding, said Lennar co-CEO Jon Jaffe.
The materials shortages caused homebuilders including Lennar and D.R. Horton to earlier lower their forecasts for homes closed and revenue.
Homebuilder confidence has not yet been significantly impacted by the pricing pressures that have surfaced this year.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index found builder confidence rose four points in October as strong consumer demand helped to more than offset growing affordability challenges that have developed in the wake of higher materials prices and shortages.
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Any reading above 80 signals strong demand. The index can range between 0 and 100 with any print over 50 indicating positive sentiment.