Inflation - Tulsa Home Builders Edition

[SlugSlinger]

I suspect most builders are not sophisticated enough or have the resource to hedge against price increases, but that is exactly what should have happened when there were market dynamics that started to indicate inflationary pressures.

At minimum they could have purchased some future contracts on lumber to help offset the potential increase.

The airlines would do this with fuel and it saved them a ton of capital when the prices went through the roof.


Any of the builders on here hedge for inflation?

 

[wawazat]

What we have found out from our recent home build is that the Central Oklahoma Home Builders Assoc. couldn't care less about consumer protection or advocacy. They are a club of and for builders, that is it. We are still going through what will be years of fighting a large laundry list of issues with our builder that are contractual, competency, and criminal based.

If anyone is thinking of building in the area, I am happy to share our experience over a coffee or something, but I won't be sharing any names online until all of our issues are settled.

 

[RETOKSQUID]

Not the first time I have heard this about Shaw.

 

[JD8]

I suspect most builders are not sophisticated enough or have the resource to hedge against price increases, but that is exactly what should have happened when there were market dynamics that started to indicate inflationary pressures.

At minimum they could have purchased some future contracts on lumber to help offset the potential increase.

The airlines would do this with fuel and it saved them a ton of capital when the prices went through the roof.


Any of the builders on here hedge for inflation?

Not sure they could do this. I'd wager, there's no way of knowing what materials they would need or how much..... as every build is different.

 

[SlugSlinger]

Not sure they could do this. I'd wager, there's no way of knowing what materials they would need or how much..... as every build is different.

If they sign a contract, they should know the exact value and amount of lumber that is needed for construction. Based on that, they could buy options or the futures to cover that value. It shouldn’t be difficult at all.
It should be based on each specific contact individually and executed near the time of signing each contract.

 

[jakeman]

I suspect most builders are not sophisticated enough or have the resource to hedge against price increases, but that is exactly what should have happened when there were market dynamics that started to indicate inflationary pressures.

At minimum they could have purchased some future contracts on lumber to help offset the potential increase.

The airlines would do this with fuel and it saved them a ton of capital when the prices went through the roof.


Any of the builders on here hedge for inflation?

No. You can put escalation clauses in the contract, but most of the folks I know will not currently take on a custom, or take an offer until the house is at least 85% complete. If you're pricing one today, and you're not further along than a slab, I can promise you, you don't know what your final cost is going to be. If the bricks and windows you ordered 6 months ago don't arrive in time, or are not available at all, the suppliers will not have to honor that price. If you're waiting on something over a couple weeks, that means it ain't made yet, and if you're waiting 6 months, that's a crap shoot, at best. It may or may not ever get made, and you may or may not get it from the folks you ordered it from.

I'm looking at a 3000+ sq ft custom right now. They're working on a print. I'll give them a "budget" and they'll get their own const loan and I won't even consider it for less than cost +20%, and the budget will be an estimate, and I'll likely tell them if they can't produce a letter from their bank that they are good up to at least 35% over budget, they need to find a different builder. I'll also have an iron clad way out if we disagree with the rate of progress. I don't control my vendor's production schedules.

It's pretty rough out here right now.

 

[chazroh]

If they sign a contract, they should know the exact value and amount of lumber that is needed for construction. Based on that, they could buy options or the futures to cover that value. It shouldn’t be difficult at all.
It should be based on each specific contact individually and executed near the time of signing each contract.

You overestimate the intelligence of some of theses guys!

 

[jakeman]

If they sign a contract, they should know the exact value and amount of lumber that is needed for construction. Based on that, they could buy options or the futures to cover that value. It shouldn’t be difficult at all.
It should be based on each specific contact individually and executed near the time of signing each contract.

When was the last time you bought building materials?

 

[Perplexed]

So are things going to get worse before they get better? Or is there no end in sight to this slide?

 

[SlugSlinger]

You overestimate the intelligence of some of theses guys!

That’s why I was asking. I know there are some smart builders out there, then some, not so much.

I work for a company now and in the past that build very large processing plants and pipelines. Some of those were international and we would hedge currency fluctuation for the value of the contracts we had outstanding. It does get a little sophisticated dealing with fluctuations because of all the variables related to a country’s currency.