August 11, 2021
To catch up with the rapid number of sales they’ve made over recent months, many home builders have stopped taking new orders—an unprecedented move.
Builders are facing numerous challenges to completing projects already in the pipeline—material costs are surging and in short supply and labor shortages are holding activity back.
“Through our history, to have somebody walk into our models and [to have to] tell them, ‘We don’t have a house for you to buy today,’ is something that is foreign to us,” David Auld, CEO of D.R. Horton Inc., said on an earnings call in July.
By restricting the number of homes for sale, builders are prompting additional increases in new-home prices. The median price of a newly built single-family home was $361,800 in June, a 6.1% increase from a year earlier, according to the Commerce Department.
Some individual builders are reporting much higher price jumps. For example, Taylor Morrison Home Corp. has reported its average sales price in the second quarter surged 9.8% over the past year. The average price for new orders jumped 31.8%, The Wall Street Journal reported.
“Because builders are intentionally not selling, it’s creating a lot of pricing power,” Alan Ratner, managing director at Zelman & Associates, a real estate research and advisory firm, told The Wall Street Journal.
Some builders who are still selling are limiting new orders, while others are selling homes on a first-come, first-served basis or holding lotteries. Other builders are asking buyers to bid above list price on new homes, another unprecedented move akin to the existing-home sales market. Also, some are waiting until homes are partially or fully built before trying to sell them to price them according to the market instead of locking in the price months ahead of time.
Source: “Home Builders Are Restricting Sales, Pushing Up New Home Prices,” The Wall Street Journal (Aug. 10, 2021) [Log-in required.]