Most Builders Raise Prices, Pre-Order Materials to Combat Shortages

Faced with widespread shortages and rising material costs, home builders have reacted in an array of ways to combat difficult supply chain conditions. The most recent survey conducted by the National Association of Home Builders (NAHB), the NAHB/Wells Fargo Housing Market Index, conducted in May reveals just how home builders are responding to difficult conditions. The most popular responses were raising prices on your homes frequently and pre-ordering materials, followed by including price escalation clauses in sales/construction contracts, waiting to list spec homes until completion or late in the construction process, and cost-plus pricing.

In particular, the June survey asked the HMI panel of single-family builders how their businesses have reacted to recent shortages and price increases in building materials.  As previously noted, the most common reactions (cited by 62 and 59 percent of builders, respectively) were raising the prices on their homes frequently and pre-ordering materials, followed by price escalation clauses (45 percent), waiting until late in the construction process before listing spec homes (39 percent) and cost-plus pricing (32 percent).  Only 2 percent indicated they had adopted none of the listed techniques for dealing with the shortages and rising cost of materials.

Some of the most dramatic increases over the past year involved lumber prices.  So far, this has caused very few builders to switch away from traditional wood framing, although some are considering it.  In particular, 17 percent are considering switching to steel, 16 percent to SIPs, 14 percent to ICFs, and 8 percent to concrete masonry.