New construction booms as home buyers look to stretch out

Faced with an inadequate supply of existing homes, and a pandemic that has spurred yearnings for more space, home buyers are opting to build from the ground up.

Sales of new homes are up 20% from this time last year for Joe DeLuca, who is building several housing developments and planning more across the region. Lots are selling long before a shovel hits the ground, said the partner at DeLuca Homes, based in Bucks County.

”I didn’t expect orders to be as robust as they’ve been, and for consumers to be as active,” he said. “I don’t think we’re an outlier. The question we ask ourselves as builders is: ‘Is it sustainable?‘”

Housing starts in July were up more than 22% from June, and builders are constructing houses at the fastest rate since February, according to a report Tuesday from the U.S. Departments of Commerce and Housing and Urban Development. Permits for single-family homes jumped 17%, indicating that the strong pace of housing starts will continue through the coming months. Home-builder confidence is at its highest level since the National Association of Home Builders started keeping track 35 years ago.

Builders are responding to the need for more housing to keep up with buyer demand, which has been surprisingly strong, given the pandemic and double-digit unemployment. And they’re reaping the benefits as buyers spooked by the pandemic look to live in neighborhoods and homes that have never been occupied.

Because the supply of existing homes is low, those that are on the market are getting multiple offers and selling for more than asking price.

“All those things bode well for the new-home industry,” said Charles V. Insalaco, president of the Builders League of South Jersey, a licensed real estate broker, and president of the custom home-builder Integrity Building Group, based in Mount Laurel. “When prices on existing homes go up, it makes new homes seem more affordable to home buyers.”

Mortgage rates dropped to historic lows this month, and industry experts expect them to stay low for the foreseeable future. Because home buyers are not worried that interest rates will rise during construction, more are considering building new houses to their specific tastes and needs, Insalaco said. His company has seen strong sales throughout the pandemic, and orders for new homes are up, he said.

» READ MORE: Mortgage rates have dropped to the lowest levels in history, aided by the coronavirus stimulus standoff

Insalaco’s company is pretty much caught up with house orders now, he said, after “we experienced slight hiccups in timelines back in April and May.”

In March, April, and May, delivery of new homes was delayed by restrictions on construction, furloughs and layoffs among contractors, and fewer municipal staff reviewing building permit applications and inspecting sites.

“Right now, things are pretty robust again and moving along,” Insalaco said.

Robert Dietz, chief economist at the National Association of Home Builders, called housing “definitely a bright spot in the overall economy right now.” As with sales and listings of existing homes, the rate of new-home construction nationwide fell in March and April as the pandemic spread and started to pick up in May and June.

Dietz said single-family home construction has slowed less than he anticipated a few months ago, and it’s stronger in the suburbs, exurbs, and rural areas than in urban cores as people seek more space. Medium-sized cities are showing growth, while large cities are seeing losses.

Single-family construction fell 7% in the Philadelphia metropolitan area this year through the end of May compared with the first five months of 2019, he said. Construction in the Pittsburgh metropolitan area, however, rose 11%.

During the same period, apartment construction dropped by about a third.

» READ MORE: Coronavirus quiets the boom of Philly construction

In good news for all types of builders, most municipalities have brought back staff and resumed the work that moves construction along, said Jamie Ridge, president of the Suburban Realtors Alliance, based in Chester County, but “there’s still some delays in inspections and getting reports back and that type of thing.”

“You know, we’re in a pandemic still, so it’s difficult all the way around,” he said.

At the same time that buyer demand and builder activity have increased, the pandemic has disrupted the manufacturing of building materials such as lumber and drywall, so prices are “going through the roof” for distributors and builders, said Dan Durden, chief executive officer of the Pennsylvania Builders Association.

Lumber prices have more than doubled since mid-April, which adds more than $10,000 to the price of a typical single-family home, according to the National Association of Home Builders. In addition to shortages stemming from the pandemic, builders get roughly a third of their lumber from Canada, and for the last couple of years, lumber imports have been subject to U.S. tariffs of about 20%.

Regardless of how much they’re willing to pay, sometimes home-builders can’t get products they need. Weeks ago, a builder told Durden that he was set to deliver a house to a buyer, but he couldn’t complete it because he didn’t have some of the finishing touches he needed, including lock sets manufactured in China. Builders also are reporting shortages of materials such as lighting and plumbing fixtures, windows, and siding.

» READ MORE: As pandemic began, suburban Philly house sales went up and prices dipped, the opposite of the city market

Builders are finding that home buyers who were caught in pandemic lockdowns have been more patient than those who have ordered houses since the industry reopened, Durden said.

And builders are still struggling with a challenge that predated the pandemic: a shortage of skilled labor.

“There are plenty of people looking for work,” Durden said, “but they just don’t have the skills.”

He said he’s “cautiously optimistic” about the home building industry, but the boom will be short-lived if prices for building materials don’t come down, and if the economy doesn’t improve soon, because people who aren’t working or who fear layoffs aren’t likely to buy new houses.