Inflation - Tulsa Home Builders Edition

[SlugSlinger]

When was the last time you bought building materials?

I bought a bunch of steel last week.

 

[SlugSlinger]

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

Do you see anything that would make the situation better at this point? I don’t, until potentially the mid-terms that might slow down this debacle we are living though currently.

 

[jakeman]

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

They're going to get, and are getting, worse in the near term. Is there an end in sight? Not currently. Will it end? You damn right it will, with a loud crescendo. It's anybody's guess as to when though. I think it will be sooner rather than later, like this year, cause I think the bottom is going to fall out of the market and inventory will out pace ability to pay (notice I didn't say "supply").

I'm done building specs, for the near term any way. I'll have another look in a couple months. We're just doing it to piddle and have something to do and make some extra money. We're not an assembly line builder. We build 2000-2300 sq ft specs and we'll finish out a barn or do a custom on the owners const loan. I don't build starter homes, and I don't build anything bigger than 3300 sq for a custom. We just aren't that guy. We have a scant few trusted subs that do quality work, or they don't work for us, and we build as nice a home (and a lot better than most) as gets built in the neighborhoods we work in. The last 4 we've built were bought by the first buyer that walked thru them after they were finished. The one before that was bought when we were at the paint & floor covering stage. That turned into almost a full blown custom, and it was a complete PITA. It got so out of hand that we had to collect almost $50k in nonrefundable change orders because what they wanted would never be recoverable if they failed to close. It was a nightmare. I'll never do a custom on anything other than a cost plus basis.

 

[jakeman]

I bought a bunch of steel last week.

Did you ask if you could hedge it out 6 months without taking delivery, or making payment?

I'm pretty familiar with some folks that buy 100,000's of thousands of tons steel. (that number is correct) Mill quotes are good for generally less than 24 hours, and they want you take delivery in short order.

 

[Glocktogo]

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.

I actually have empathy for you and all builders right now. You're stuck between rocks and hard places through no fault of your own.

That being said, a savvy consumer would never sign such a contract. The variables are too great to accurately estimate the negative impacts down the road. I'd walk away and either plot a new course, or just sink my money in more secure investments and ride the storm out.

Not to worry, most consumers are NOT that savvy.

 

[SlugSlinger]

Did you ask if you could hedge it out 6 months without taking delivery, or making payment?

I'm pretty familiar with some folks that buy 100,000's of thousands of steel. (that number is correct) Mill quotes are good for generally less than 24 hours, and they want you take delivery in short order.

Right, and you don’t hedge with a supplier, but a bank, financial institution or exchange.

 

[mgssamn]

I get more $$ because of increases etc.. but the OP's article seems to say that they are asking for more money and not giving breakdown of what the additional is specifically for?? everyone knows costs are up, but why cant they show specifics? If the house you contracted for had $100,000 of lumber etc etc, if you are go into charge homeowner $130,000 to finish or move in, what would the business reason for them not being able to come up with the $30,000 of what they are spending it on? If my material cost is X and I actually purchased due to increased price for x + 25% i would be able to show that if i was building a house. maybe i am missing something. Again, I am not disputing the incresases but woudl demand specifics myself. perhaps they want folks to pull out and it work better for them to sell with mkt the way it is themselves to another person. I dont know, jsut find it weird they cant give detail of cost from what i seen in article. -talking the Shaw article

 

[jbarnett]

I dont understand why anyone would hire a builder. Maybe I'm just lucky and know enough people to not have to. I guess if you can afford it but I'd be more worried thinking someone else would make sure it was built with the same quality I expect.

 

[O4L]

They're going to get, and are getting, worse in the near term. Is there an end in sight? Not currently. Will it end? You damn right it will, with a loud crescendo. It's anybody's guess as to when though. I think it will be sooner rather than later, like this year, cause I think the bottom is going to fall out of the market and inventory will out pace ability to pay (notice I didn't say "supply").

I'm done building specs, for the near term any way. I'll have another look in a couple months. We're just doing it to piddle and have something to do and make some extra money. We're not an assembly line builder. We build 2000-2300 sq ft specs and we'll finish out a barn or do a custom on the owners const loan. I don't build starter homes, and I don't build anything bigger than 3300 sq for a custom. We just aren't that guy. We have a scant few trusted subs that do quality work, or they don't work for us, and we build as nice a home (and a lot better than most) as gets built in the neighborhoods we work in. The last 4 we've built were bought by the first buyer that walked thru them after they were finished. The one before that was bought when we were at the paint & floor covering stage. That turned into almost a full blown custom, and it was a complete PITA. It got so out of hand that we had to collect almost $50k in nonrefundable change orders because what they wanted would never be recoverable if they failed to close. It was a nightmare. I'll never do a custom on anything other than a cost plus basis.

I feel for you man. I was raised in the business and custom homes can be a nightmare, especially if you are building quality homes and giving people their money's worth.

When I was teenager, I spent all summer one year making changes on a 5000 sq. ft. custom home that was still bare studs inside. The owner's wife would come by every evening and make more changes.

The last custom home I built was only 1500 sq. ft. and still took a year to build because the owner was basically the general contractor and made decisions on a day to day basis only and delivered materials himself. It's a good thing I was working by the hour on that one.

 

[NationalMatch]

Seems like an example of a reputable company doing disreputable business practices. I get why he feels what he's doing is right, but are all of his competitors doing the exact same thing? Or just him?

His reputation should rightly take a hit. I hope the HBAGT and BBB allow the negative reviews to stand.

I have some friends who fled kalifornia for Idaho. They contracted to build a home for $500,000. By the time it was finished, they paid $1.2 million.

This isn't just a local phenomenon.

I'm even seeing houses that sold in 2019 for $X, now selling for $X times 2. Or more.

I read that interest went up this week. Rumor has it that it's the first of several increases. That typically slows sales down which brings prices down. We'll see.