Increasing costs could curb home building

 
Posted on July 9, 2018 by Jorie Helms

BY RICHARD MIZE
Real Estate Editor rmize@oklahoman.com

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Dan Reeves of Landmark Fine Homes in Norman built this “voice-controlled” concept home at 741 Villaverde Drive in Norman. [PHOTO BY STEVE SISNEY, THE OKLAHOMAN]

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Park space is shown in the Seiter Farms addition in Moore.

[PHOTO BY JIM BECKEL, THE OKLAHOMAN]

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New homes are shown along SE 38 in Seiter Farms addition, west of S Sunnylane Road between SE 34 and Indian Hills Road in Moore. [PHOTO BY JIM BECKEL, THE OKLAHOMAN]

Metro-area homebuilders surpassed last year’s pace at midyear, but fear some speed bumps ahead because of skyrocketing lumber and labor costs.

Builders started 2,473 houses by the end of June, 2.3 percent more than in the first half of 2017, according to The Builder Report by Dharma Inc. in Norman.

Dharma tracks building permits in Oklahoma City, unincorporated Oklahoma County, Bethany, Blanchard, Choctaw, Edmond, Midwest City, Moore, Mustang, Newcastle, Noble, Norman, Shawnee and Yukon.

Lumber and labor

“Builders biggest concern is the out-of-control material costs,” said Tony Foust, owner of Da Vinci Homes in Norman and president of Central Oklahoma Home Builders Association. “We have seen in some cases a 40 percent increase from January to June, and it shows no signs of stopping.

“It has stemmed from the lumber tariffs with Canada and our government not allowing us to harvest our own resources. The other concern is the increased labor cost due to the shortage of labor and skilled labor.

“These are the two items at the top of the residential builders’ concern. These two factors are driving up the cost and extending time of construction.”

Buyer interest has been strong so far this year and could spike further to get ahead of possible steeper increases in house prices, said Ali Farzaneh, co-owner of Home Creations in Moore.

“Business has proved to be great in 2018,” he said. “We did not expect the tariffs to drive the housing prices up so much, but even with the increase in the price of homes and the increase in interest rates, we are 10 percent ahead of where we were last year this time.”

Farzaneh said Home Creations has more than 200 custom homes under contract with deliveries as far out as early 2019. With prices fixed, he said the increase in tariffs and material costs could drive construction costs higher than sales prices, which would have them selling at a loss.

Buyers are paying attention to finance and international trade, he said.

“Buyers are starting to understand the impact tariffs and a rising interest rate have on the price of homes, and as a result, their mortgage payments. Most buyers are trying to purchase their new home before the next wave of price increases,” Farzaneh said.

Rising rates, costs

Oklahoma City’s Homes by Taber is having its best year ever, and is on pace to surpass its 2018 goal of 340 sales, said Lindsay Haltom, director of marketing.

“We are consistently reminding shoppers that interest rates and construction costs are on the rise,” Haltom said. “What does that mean for them? It means that what they are able to afford now, will not be the same home they can afford later. Our construction costs have increased by the thousands and luckily, we have been able to sustain our price points with minimal increases.

“No matter your political stance, the facts are that (President) Trump’s tariffs have increased costs that are being funneled down to consumers. We are doing our absolute best to absorb these increased costs ourselves whenever possible, but that cannot go on forever. If you are in construction, you’re feeling those added costs of lumber and steel.”

Interest rates won’t stay low forever, either, she said.

“If it’s not on their mind already, we want to make sure we are educating them about this key issue. While a small shift in interest rates can seem nominal, when someone is shopping based on monthly payments, this can greatly influence their ability to purchase,” Haltom said.

Ideal Homes of Norman was two months ahead of 2018 projected sales at midyear, and expects buyer enthusiasm to stay strong throughout 2018, said Steve Shoemaker, vice president of sales and marketing.

Buyers are “informed about their buying power,” he said. “There are so many tools online for buyers to learn about how interest rates will impact their mortgage payment.

“Interest rates are still low, but people know they’re likely headed up and buyers are acting accordingly. We spend a lot of time talking to potential buyers about the total cost of ownership — not just their mortgage payment, but heating and cooling costs and other things that impact their monthly budget.”

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