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Tracing the Disconnect in The Affordability Crisis In America: Homebuilders face rising costs and slower supply chains Due to Covid-19

Homeownership Program

The Coronavirus pandemic has not only affected the health of Americans but also their livelihoods. While primary sectors in the economy such as transportation, health, agriculture have been dealt a huge blow, the housing market has not been spared from the crisis. The pandemic has hit several citizens hard, making it difficult for them to pay up even the main bills such as utilities, rent, internet access, and other varieties.

The measures against the spread of coronavirus in the USA have a far-reaching impact on the economy, which affects the housing market. Despite the high demand for houses and low-interest rates, it’s a watershed moment for homebuilders because of the low supply and rising cost of materials, unavailability of laborers, and inadequate supply of lumber and other building materials, which has added thousands of dollars to the construction of houses. These obstacles have deprived the homebuilders of the advantage of enjoying this spring home buying. Then how does this affect affordability?

Since homebuilders do not have the opportunity to build a house, there is a shortage in supply while demand multiplies. In the meantime, demand will exceed supply which will lead to a scarcity of rental homes. Frankly, this is the perfect time for landlords to make a fortune. It is simple economics: whenever demand exceeds supply, price steps up. Therefore homeowners will pass higher prices to the rentals, which will worsen the affordability crisis.

Notable figures have commented on this crisis, and their comments are reported below.

The head economist, Ali Wolf, at housing market data tracker Zonda Economics predicts that home sales will be 5% greater than the previous year (2020). That indicates a tremendous fall in the growth rate from the 20% increase carried forward from 2019.  Ali  Wolf later added that “if more houses had been built, more home sales would have been possible.” That means that home sales are positively related to its availability.

Robert Dietz, the head economist, National Association of Home Builders is yet to publish his housing forecast but expects the rise of home sales at a slower pace amid robust demand because of the inconveniences surrounding procuring a new home. Despite claiming that the housing market will grow, he stated that its growth would be relatively lower than in the previous year – since the house affordability problem has been aggravated by rising costs of housing materials. This inflation in the price of materials has caused the value of an average single-family home to rise by more than $24,000.  “Costs are rising, materials are showing up late, and particularly it’s acute in the lumber market,” he lamented.

Carl Reichardt, a BTIG homebuilding analyst,  said: “Rapid home sales will continue unless there is an availability of land and materials.”  Since the price of cement, lumber, and other construction materials are not predictable, the price instability has exacerbated over the previous year because of the pandemic, resulting in the inflation of construction materials and delay in the supply chain.

According to the National Association of Realtors, the housing market bounced back last summer after hitting the rock in the spring during the pandemic outbreak. The sales of homes in the US reached their peak in the previous year since 2006(more than a decade ago).

Conclusion

Although there is plenty of demand for houses accompanied by low-interest rates, buyers still face several issues with home buying. These issues arise due to high material costs and delays in the supply of lumber and other construction materials. While some homebuilders stopped purchasing land amid the uncertainty surrounding the pandemic and housing demand in the previous year, some took the courage to secure more land in anticipation of robust demand in the following year. However, homebuilders who have their materials ready will take advantage of this critical period than those that fail to take risks.

References

https://www.mrt.com/business/article/Builders-grapple-with-land-shortage-soaring-15979135.php

https://africa.businessinsider.com/design/how-2020-broke-the-housing-market-so-many-homes-are-selling-that-we-could-run-out-of/d550b45

https://ca.finance.yahoo.com/news/u-homebuilders-confidence-slips-january-150221659.html

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