With a new year upon us, there’s a year’s worth of potential opportunities for custom home builders to help clients realize their dream homes.
But what are we stepping into? How does this new year look?
While it’s impossible to predict exactly what will happen in this next year, we’ve rounded up a few key projections every custom homebuilder should go into this year knowing about.
4 Challenges for the Custom Home Building Industry in 2024
Like the last several years, 2024 is poised to be a year that requires patience and resilience regardless of industry.
For the custom home building industry, four factors that impact daily business are again expected to be challenges to overcome:
- Lumber prices
- Supply chain delays
- Housing market fluctuation
- Labor
1. Lumber Prices
The bane of many custom home project’s budgets, lumber prices are still expected to be a significant cost driver in building a custom home. There’s good news though – it won’t be as bad as it was during pandemic times.
During 2023, lumber prices saw a mixed bag of movement. Starting the year off, prices per board foot spiked by nearly 10% than the year before. But by April, they dipped down to 2024’s lower price levels – around $400 per 1,000 board feet. However, by the end of 2023, the trend was reversing, with prices starting to go back up by nearly $200 in November. That hike still kept prices almost a quarter of what they were at their 2021 height during the pandemic.
What does that mean for 2024? Economists project prices to continue to go up again, but still stay below pandemic peaks.
Why? A few reasons:
- Increased housing demand
- Increased production costs
- Materials market volatility
2. Supply Chain
This one is interesting.
On one hand, yes, things have gotten better. Think back to two years ago – prices on just about everything spiked and many building products had long, long lead times. It was indeed a different – and costlier – world to build a custom home in.
That started to change for the better just before the beginning of 2023. Though inflation made its presence well-known, the pricetag to build a home started to reach more familiar levels, as gaps in the supply chain once again closed.
Supply chain analysts are expecting stabilization to continue. Still, some issues will persist, such as inflation-driven high materials and labor costs.
3. Housing Market Fluctuation
The housing market has been a tumultuous place the last several years. That’s not expected to change in 2024. Consider these insights from housing market analysts:
- More Homes on the Market: Zillow predicts that more homes will become available as homeowners acknowledge that mortgage rates are unlikely to decrease significantly. The expectation is that high mortgage rates will persist.
- Mixed Price Trends: Yahoo Finance forecasts up to a 4% rise in US home prices. While prices are expected to continue climbing, the rate of growth might slow down compared to previous years. Those at Morgan Stanley tell a slightly different story, suggesting a possible decline in home prices by up to 8% from 2023 levels. This outlook is based on expectations of lower mortgage rates, higher incomes, and increased activity in the housing market.
- Nominal Easing Mortgage Rates Declines: Realtor.com anticipates a slight decrease in the historically high mortgage rates and housing prices that have been challenging for homebuyers. This forecast suggests some relief for the market in 2024.
4. Labor
In the last several years, the labor force has become increasingly challenging. Not only is it getting small, but it’s getting more costly all against the backdrop of increased construction demands.
That’s not expected to change in 2024.
With an expected upswing in housing production in 2024, the demand for skilled construction workers will increase. That demand, however, will be met by continued labor shortages within the construction industry as well as an existing workforce that’s retiring in droves.
Additionally, construction wages are expected to increase, possibly in the range of 3% to 5%. However, even with increased wages, the problem of limited labor availability is anticipated to be a persistent issue, which could affect the pace and cost of new home construction.
Meeting This Year’s Custom Home Building Industry Challenges Head-on
As custom home builders search for ways to manage their business and insulate themselves from challenges, many are forming strategic partnerships with material suppliers.
With an affiliation, custom home builders join other industry professionals to create a collective that has improved buying power. Not only does this open the door to lower prices through bulk purchasing, but also seeing faster turnaround times as the large orders are given higher fulfillment priority.
Another strategy custom home building industry professionals are turning to is using construction processes rooted in efficiency, such as panelized construction.
Designed to maximize materials, budgets, and labor, panelized construction reduces building times and the resources needed. For the builder, this has two immediate impacts:
- A project is completed faster, opening schedules up for more projects
- Prices are kept in check, helping the client pay for only what they need.
Home Building Industry News: Growth Opportunities in 2022
In 2022, custom home building remains a worthy and noble pursuit. You’re helping people realize homeownership and build their dream home.
With demand remaining high, there are significant growth opportunities for custom home builders in 2022 despite the challenges.
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