SO HAS THE SPRING REAL ESTATE MARKET — aka the “Selling Season!”
I do realize that it’s been “Selling Season” for the better part of a decade now… but still, there are seasonal spikes in activity. We’ve just entered the 2021 spike.
This graph shows the seasonality of new listings in Whatcom County going back to 2018.
The peaks are in the summer… that’s us now, ramping up on the far right:
Aside from record-breaking sales, prices, shortest times on market, lowest inventory we’ve ever seen… we’re seeing another area of the market that is breaking records.
Holy unaffordable over here! Have you been into a lumber store recently? If so, did you cry?
Guess what those prices have a HUGE effect on?
Housing. Namely, the concept of “affordable housing”. Or affordable home-improvement-ANYTHING.
And yet the builders we work with regularly have never been busier and have never hired faster (or I should say, “tried to hire” faster.)
In this post, I’m going to take a brief look at the conundrum faced by would-be home-owners considering a remodel, land owners or land buyers who “just want to build a nice, affordable little place.”
Hold onto your hat… the story I’m about to share could blow it right off.
In the Beginning…
When the Covid Pandemic Hit in early 2020, most economists, investors, builders, Realtors… most people of any stripe… predicted that we’d see a dramatic drop-off in the markets.
I mean the real estate market, the building market, the larger development market, not to mention the stock market, everything!
And to be fair, there was the briefest of pauses as we all masked up, sanitized everything, and looked carefully around at a world we were sure was about to go –and remain — silent.
While we had been in the typical spring run-up of new inventory, it came steadily to a halt as sellers (understandably) hit the brakes and holed up tight.
In the graph of new listings of single family homes below, the arrow points to the beginning of the lockdown in March, 2020.
At the same time, new construction projects were literally just walked-away-from, as construction was considered “non-essential”.
Every carpenter, foreman, plumber, electrician, roofer and painter was told to go home and sit tight.
It was eerie to drive by example after example of this type of project, below, with building wrap flapping in the wind, and not a soul on site to keep things going.
Covid began running rampant and didn’t just affect jobsites and construction projects with mandatory shutdowns… it quickly worked its way into the supply chain.
In areas all over the world, not just the US or China, a positive Covid test within a factory or plant could cause unexpected shutdowns in…
- Lumber mills
- Steel mills
- Assembly plants
- Door and window factories
- Fixture and finish factories
- Boutique component suppliers
Not to mention…
- Trans-oceanic shipping operations
- Domestic ports
- Distribution hubs
- Local warehouses
- Retail outlets
- Last-mile deliveries
Ever heard of a little company called GE — as in, General Electric? Here’s a story about their shut-down of an entire appliance assembly plant that employs 4000 hourly workers.
Here’s a closer-to-home, real-life example from a project we had going on last winter:
Everything had been running smoothly until our carpenters hadn’t shown up for a couple days. I called the contractor, not to complain… just to inquire, “What’s up?”
“The sheetrock delivery driver’s girlfriend tested positive for Covid,” he began.
That set off a chain of inter-connected causes-and-effects that rippled through not just our job, but several others, causing a re-shuffling of labor, re-scheduling of all the downstream trades waiting their turn, on multiple jobs.
And that was merely the girlfriend of one delivery truck driver in the local supply chain.
Multiply that event across the entire, global construction industry.
I’m sure you’ve caught plenty of images and news spots of backed-up shipping ports, with multiple container ships anchored offshore — completely choking the supply chain.
Wondering why you still haven’t received that new chandelier you ordered for the dining room? It’s stuck on one of these anchored container ships!
Then, as we know, THIS happened…
With the Covid-caused constraints now firmly squeezing production facilities, supply chains, local retail, right on down to the general contractor firms or even the neighborhood handyman…
By July, 2020 the 30-year fixed rate mortgage had dropped below 3% for the first time ever… and kept dropping through January of this year.
Buyers went NUTS — leading us to the record-breaking real estate market we’ve been in the midst of this past year.
- Inventory: All-time low
- Prices: All-time high
- Time on market: All-time shortest
- Bidding wars: All-time most competitive
(I know… I’m telling you things you already know. Wait for it…)
And… like housing… construction (both labor and materials) followed the same course.
Demand for housing SURGED — thus, demand for materials, already constrained by the supply chain choke points, SURGED!!!
And when demand surges, what else does? That’s right: PRICES!!!
Swallow your coffee before you look at this graph below.
In March, 2020, the month that Covid went mainstream in the US, 1000 board feet of lumber was selling for $264.10.
One week ago today, that same 1000 board feet of lumber was selling for $1686.00.
My friend… that is a 638% increase.
No no, take your time.
I’ll give you a minute for your brain to recover from doing this…
And… it’s NOT JUST LUMBER!!!
It is EVERY part of your dream remodel project or — even more frightening — your new house build.
But remember, despite the increase in material costs and the protracted delivery times for nearly everything construction-related… DEMAND has spiked.
New housing starts, nationally, are up 37% over March 2020. Housing starts
don’t just happen one day on a whim… there’s a lead-up to them (like the whole design and permitting process, for example).
So those less-by-37% March 2020 numbers are pre-anything-Covid-related.
And then THIS happened…
I’m not making this up.
On top of the Covid-related surges I’ve already described, which I realize are enough of a shock to your senses and your bank account by themselves, another event occurred.
On February 1st, an amendment to the 2018 International
Residential Code was implemented after multiple previous delays and political back-and-forths.
It requires new construction to adhere to eco-friendly changes to the building, fire, plumbing, and mechanical codes such as:
- Heat pumps versus natural gas forced air systems
- More highly-insulated windows
- Higher R-values in the floors, walls, and ceilings
New homes must achieve a certain point-level with the changes, each of the various upgrades being assigned a point value.
It is estimated in pretty much every article I researched that the changes will add between $15K and $30K to a new house, depending on its size.
*It is not my contention at all that these changes are not of long-term benefit to the quality of our houses or the health of the environment. I am merely sharing the staggering layering of cost-increase-related events to help tell the story.
Meanwhile, regarding land sales in Whatcom County
I bet you can guess…
Land sales haven’t been at their current level since the 2006 pre-Great-Recession bubble.
- 26% of land listings County-wide are under contract with buyers.
- In the last 6 months there have been 290 land sales.
- For the same period 1 year ago, that number was 225.
- A year prior to that, it was 200.
The graph below shows the County-wide land sales. The red arrow denotes — guess what? — the Spring 2020 Covid bottom-out.
We encounter many buyers who call us and say, “We can’t afford to buy a house, so instead we’re looking for raw land so we can build.”
There may have been a time in the past…
Or, there may be a profile of buyer (such as a carpenter/general contractor) who can undertake the entire project herself, who has the time and resources to continue making a living while they build their own house.
Generally speaking, though, considering the information I’ve shared above, we can *usually* truthfully say that — despite the competition among buyers — you can still buy an existing house for (measurably) less than you can build.
That may change one day. Or it may be true now somewhere other than Whatcom County.
If you know differently… or if you have anything to add or to ask, please reach out to me at [email protected].