It was only a year ago that the experts were all talking about the “new normal,” warning that we were in for a slow recovery and an era of reduced expectations.
Builders clearly didn’t get the memo and neither did home buyers. In 2012, permits were up 34 percent year over year nationwide and up 54 percent in Atlanta. As of February, unsold new home inventory stood at 4.4 months and sales were up 12 percent year over year. Builders say homes are selling with fewer discounts and incentives, and even Ivy Zelman — well-known as one of the most conservative housing analysts in the country — is projecting another 29 percent increase in new home sales in 2013.
The talk around Atlanta is noticeably more cheerful, which is to say that we’re starting to complain about different problems — for example, the production builder who recently told me, “I can’t get my spec packages out because we have so many darn contract houses to build.”
He got no sympathy from me, partly because we have our own issues to work through in the supply chain. The one keeping me up at night right now is the availability and price volatility on building materials over the next few months.
I’m sure everyone has experienced the seemingly overnight jump in the prices of many products. It’s no mystery why; a lot of production capacity was mothballed or shut down during the recession. For example, Forest Economic Advisors recently checked the status of 146 sawmills — roughly 17 percent of total North American capacity — that were closed since 2008. FEA reports that “40 percent had been dismantled and 14 percent were intact, but declared permanently closed by their current owners.” So far, just 26 facilities have reopened while another 35 are mothballed and could eventually come back on line.
At the dealer level, experts estimate that somewhere between 35 and 50 percent of establishments have been closed, mothballed or otherwise removed from the market. That estimate could be conservative when I think about the number of lumber and building material dealers in Atlanta who are no longer with us. The strongest survived, but many good operators did not.
Sharp price increases, longer lead times and material shortages are not out of the realm of possibility. Every builder who is pricing contracts to build homes or planning speculative construction should make it a point to understand the volatility of our current situation, and have a plan to mitigate risk. Capacity will come back as confidence in the recovery grows, but it will take some time.
The new normal may be that builders and dealers both will need to put as much effort into developing strong supply relationships as they do marketing to their customers. When you’re selling homes as fast as you can build them, the only thing worse than paying higher prices is getting a really cheap price from someone who can’t deliver and throws off the production schedule or delays a closing.
Selling building materials isn’t much different from selling homes; you can overcome higher prices with a little extra sales effort, but it’s a lot harder to overcome broken promises.
Nick Massengill is the Vice President of Sales & Marketing for Robert Bowden, Inc. and a 30 year veteran of the building material industry. He serves on the Board of Directors of the Greater Atlanta Home Builders Association, and is a steering committee member at the Harvard University Joint Center for Housing Studies. Robert Bowden, Inc. is an employee owned wholesale manufacturer and distributor of building products. You are welcome to contact Nick directly at 770-429-9285 or at nick@robertbowden.com.
Robert Bowden, Inc., a Builders Club Rewards Sponsors, awards Reward Points for purchases paid within terms in the following product categories: windows, trim, doors and millwork, door hardware, stair parts, cornice and siding.