The Challenges of Buying a Fixer-Upper
Once upon a time, when a homeowner wanted to renovate there was a simple system in place. Choose the materials to suit your taste, hire a contactor (or if your skilled in this craft, do it yourself), and then start the work. But now, things have changed. Supply chain logjams have led to shortages for many basic home renovation materials. Purchasing the needed items is often difficult if not impossible.
The shortages are not confined to a handful of items. It can be a difficult chore to locate major kitchen appliances, lumber, or pieces of pipe – the list of necessary materials in short supply is endless. But it doesn’t stop there. Severe shortages of skilled tradesmen, such as carpenters and plumbers are adding to renovation difficulties. These facts are not only exacerbating the renovation process, but are also affecting the construction of new homes, which are already in short supply.
Realtor.com decided to delve into the problem to try to get a handle on what exactly is causing the current shortage issue and which items are the most difficult to find due to the congested supply chain.
To begin with, shortages for items in demand will bring higher prices, as the laws of supply and demand are universal. Also, the cost purchasing a new home has risen an amazing 17.5% compared to the same time last year.
The reasons for the supply shortage are multiple. Many manufacturers around the world were unsure how the pandemic would affect buyer behavior. They therefore held back on production for fear of being stuck with large inventories which they feared they would be unable to sell. Other manufacturers were impacted by government stay at home orders which kept workers home, rather than on the production line.
But now that factories have reopened for the most part, supply chain bottlenecks have made it difficult to reach retailers. And again, what actually arrives in stores is now more expensive. Other issues adding to the logjams are shortages of shipping containers, tariffs, shortages of longshoremen, and a severe shortages of truck drivers to deliver merchandise from the dock to the stores. One example will suffice: At one point, the cost of building a home rose by an average of $36,000 solely because the price of lumber has skyrocketed. And remember, wood is a necessity for furniture and homebuilding. As a result, furniture deliveries often take months to arrive. When we calculate shortages of other merchandise and commodities, we can begin to see how these shortages are affecting building and renovating.
Major appliances such as refrigerators and stoves are generally manufactured overseas. Replacing such items that are in disrepair or ordering these appliances for a new home can take months to arrive. According to U.S. Census data there is now $3 billion in goods that have been ordered but has not yet been shipped. Nowadays, many major appliances use computer chips which are also in very short supply. Even paint prices are up 15% since 2019.
And as mentioned earlier, there is a severe lack of tradesmen and construction workers. The reasons for this are many, but it seems younger people feel there is a lack of status in these fields and even a stigma for blue collar workers – more young people have opted for college in recent decades. Also, during the Great Recession of 2007/2008 construction slowed to a crawl. People who worked in the industry left for what they felt would offer a more secure and lucrative future.
All of these issues, according to The CoreLogic Home Price Index have served to raise prices on new homes dramatically (see stat above) compared to a year ago, representing the highest annual rate of price growth since the index began in 1987.
According to a survey by The National Association of Homebuilders more than 90% of builders reported shortages of appliances, lumber, plywood, windows, and doors.
Buckle up. Worse yet, economists are predicting that these issues will persist at least through 2022. Unfortunately, the consensus is that things will get worse before they get better.