Current Issues and Future Solutions in Today’s Building Climate
Building in today’s climate presents more challenges than ever before. From rising prices for every component of the homes to trucking delays, supply chain shortages, labor issues, Covid, and now Russia invading Ukraine.
The question continues to be—how can we manage our businesses in the best way possible?
A Globalized World Means a Globalized Business
We live in a global economy and build at the local level. We must factor global effects into our daily and local planning. It can be challenging to understand the unforeseen impacts these global topics may have on our building climate business and clients’ businesses.
With supply chains incredibly globalized now, there is a much higher risk business are coming to understand. To receive materials quickly, companies rely on offshore fulfillment to meet demand, yet this strategy has gone belly up with a variety of global issues. Mitigating these issues can be lengthy and complicated, drawing on many areas of production. Having a plan to re-route is essential to keeping business productive and efficient.
Market correction indicators are in – Inflation is here, interest rates are on the rise, the stock market is correcting itself daily, and sales will slow. With this all being said, we do not feel that this correction will be a burden on the industry. The construction industry has a sizable backlog of homes nationwide under a new contract or under construction. Alongside new purchases to come, that will remain; albeit at a slower pace, we feel the industry will fare well in 2022.
A slight correction in the market is needed as supply chains, trucking, and labor can not keep up with the housing/construction demand levels we have recently seen. If these demand levels continue, we will see an even more significant increase in build cycle timeline delays, poor construction quality, and an onslaught of warranty issues in the years to come. Yes, the high sales volumes and low-interest rates have been great and enjoyed by all, but at what cost?
Rising interest rates are starting to put pressure on the mortgage application process, indicating a slowdown in construction. Mortgage applications, both new and refinance, have dropped to the lowest levels in over two years in late January through February. The degree of the slowdown we will encounter is the real question. We feel housing starts will remain fairly strong while market corrections settle in, and a healthier industry will prevail.
Future Solutions: A Path Forward
With the housing market starting to slow, it will allow the industry to decrease the gap between housing starts and closings, correcting the build cycle timeline while enabling supply chains to increase inventories. With this being said, home prices will remain high in this building climate. As lumber was the leading pricing increase indicator in 2020, it will be the first to decline once the correction begins to balance out.
Currently, all other construction components are now on the rise and will lag behind the lumber decrease, propping up home sale prices. We do not anticipate ever seeing lumber at 2019 prices again; however, the new bottom should be very manageable in light of the extremely high cost over the past two years.
Overall the Economic Forecast for 2022 is strong. We feel we have learned a great deal from the past two years and can use this information to better our businesses. One of the paths we feel will help us all is setting appropriate expectations. Having open and honest communication around the cost of goods and services and what we all can truly perform.
As always, our goal is to underpromise and over-deliver. This is our motto at ICG and our pledge to our customers and partners. We are leading with this philosophy in 2022! If you have any further questions or inquiries, please feel free to contact us to learn more.
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