Summary: In this article, RealWealth® Investment Counselors and pro real estate consultants share tips on where to find housing inventory in a low inventory climate. Also, find out how the lumber shortage is impacting the cost of building new construction homes and what this could mean for investors in 2021.
Don’t want to miss out on these insanely low interest rates? You and everybody else. But where can I find investment property to buy? That’s a question a lot of real estate investors might be asking themselves right now. With very little existing inventory on the market, more people have gone the new construction route. But even those are hard to come by.
There’s already been missed deadlines and lengthy delays on new construction homes since the pandemic began. This has been increasingly frustrating, not only for our members at RealWealth®, but for investors everywhere.
Now it looks like a shortage of lumber could delay building for several more months and increase costs.
But it’s not all bad news…there are still real estate markets, like Huntsville, AL, that offer affordable new construction investment properties. More on that later!
RealWealth® Investment Counselors and pro real estate consultants weigh in on the lumber shortage, what investors should expect with the rising cost of materials, and which markets still have housing inventory available…
Reasons for the Lack of Housing Inventory
There are a variety of reasons for the lack of housing inventory. Most notably, low interest rates, which are causing more people to want to buy (hint: Millennials hitting prime-buying age). A lot of sellers have also decided to hold off on selling properties until the pandemic is over.
In our line of business, this has made it hard for the Property Teams in our network to find existing properties to rehab. What’s left is new construction, but there are issues there too. Specifically in relation to the lumber shortage, the consequential increase in cost and the time it takes to build…Before we get ahead of ourselves, let’s find out what’s causing the lumber shortage.
Why is There a Lumber Shortage in the U.S.?
As low mortgage interest rates have boosted an already high demand for housing, builders have even more incentive to keep rolling out new construction homes. Housing starts are up 30% year over year–a 14-year high. But the increase in demand isn’t the sole reason lumber prices have jumped. The supply of lumber is completely off.
Mill operators and lumber dealers didn’t anticipate 2020 to go like it did (let’s be honest, who did?). In 2019, there weren’t as many housing starts or remodels. To reflect that downward trend, less lumber was produced for 2020.
While most industries took a nosedive, the housing market has ended up being a shining star of the pandemic.
Lumber mills weren’t prepared for it. Social distancing requirements forced mills to limit the number of workers per shift, furthering production delays. Not to mention the wildfires that incinerated thousands of acres of timberland.
There have been more people remodeling their homes, rather than spending money on travel or going out. And because the market for existing homes is so insanely competitive (i.e. dozens of offers at thousands of dollars over asking price), more people are looking to new construction homes.
Because the lumber supply simply doesn’t exist to meet the demand for construction starts, remodels and DIYers, prices have gone up dramatically. According to Random Lengths, lumber prices for softwood have increased 112% compared to this time last year. And in just the past week they have risen 10% in price.
Who Pays for the Rising Cost of Lumber?
More expensive lumber prices have resulted in more than $24,000 in added costs to the average new single-family home build, (according to the National Association of Home Builders). Builders can only pass on so much of the added cost to buyers, otherwise they’ll be priced out of the market. And builders can’t shoulder the entire burden of high lumber costs without losing total profitability. There could be a pause on tons of new builds across the nations, as framing costs become less and less affordable.
When Will Lumber Production Catch Up With Demand?
Even though real estate is leading the charge toward an economic recovery, there can only be so much growth with such limited supply/rising costs. Not only are available lots for new builds hard to find, increasing home prices aren’t keeping up with the rising cost of materials. This may present a real problem for builders and buyers over the next year to year-and-a-half. Real estate experts have said that lumber production might not be able to meet demand until the last half of 2021. Others predict it could be even longer than that.
We don’t know yet how much lumber prices will increase over the next six months to a year. So anyone buying a new construction home during that time frame should plan on added lumber costs. Since COVID-19, the average sales price of new homes has gone up by nearly $28,000.
So how are investors finding homes to buy when housing inventory is so low and demand so high? Our Investment Counselors go over some helpful tips for finding housing inventory right now.
3 Tips for Finding Housing Inventory Right Now
Please note: these are general recommendations. Every investor’s situation is different, so make sure to do your own research and due diligence.
Tip #1 - Broaden Your Net of Potential Real Estate Markets
Sometimes investors will get tunnel vision when deciding on a real estate market to invest in. For example, instead of just looking at properties within city limits, it’s usually worth considering looking in areas a little further out. Homes are generally less expensive and more available.
Because markets are changing all the time, it’s important not to rule anywhere out. With so few options, you may not end up buying where you initially planned. Simply due to lack of inventory or sub-par market conditions. Having a longer list of housing markets to consider is almost a necessity in this competitive market. Just make sure where you’re looking has all the characteristics of a strong real estate market.
Tip #2 - Work With Professionals Who Know the Market(s)
Who better to get the most accurate and up-to-date information than real estate professionals and property management teams that are on the ground in a particular market? RealWealth® Investment Counselors are well-versed in what’s going on in housing markets across the country. That’s a major reason we spend so much time researching and talking to teams within those markets. A network of pros makes investing in real estate a whole lot easier.
Tip #3 - Consider New Construction Homes (as it may be the only option)
Tip #3 goes along the same lines as broadening your net of potential real estate markets to invest in. Maybe you’ve never even considered buying a new construction home and prefer to stick with existing homes. Well, a new build may be the only option in a lot of markets right now. But it may also be the best option. Super-low interest rates should help offset the rising cost of materials for new construction homes.
One market where we know there’s new construction inventory is Huntsville, Alabama. Here’s why we like this market…
Why Invest in Huntsville, AL?
We don’t just like Huntsville because it’s one of the few real estate markets that still has new construction inventory for sale. We like it because its population is growing rapidly (105% faster than the national average), thanks to a huge number of new jobs entering the economy (another reason to love Huntsville). Housing prices remain affordable–but they may not be for long…
RealWealth® Investment Counselors and on-the-ground property teams in Huntsville highlight why the Huntsville real estate market is a great place to invest right now.
- Rapid population growth
- Growing volume of high-income jobs
- Steady equity growth for many years
- Solid rental prices
RealWealth® Investment Counselor Aristotle Kumpis, explains, “Huntsville has a very solid economy, with lots of aerospace and government jobs. It’s a smaller market compared to others that we offer. However, the price points are still very affordable.”
What's Driving Job Growth in Huntsville? The University of Alabama
The University of Alabama is based in Tuscaloosa, but it has satellite campuses all over the state. The campus in Birmingham focuses on medical, (i.e. med school, nursing school, teaching hospital, etc.). The campus in Huntsville specializes in STEM (because Huntsville’s the rocket city). STEM attracts companies like Facebook and the FBI’s cyber-division.
6,600 New Jobs Coming to the Huntsville Metropolitan Area
- Toyota’s finishing a factory there that will open this year and create 4,000 new jobs
- The FBI is moving 2,500 jobs from Virginia to Huntsville
- Facebook recently opened a $750 million data center in Huntsville adding 100 jobs
- The new Space Force is expected to move from Colorado Springs to Redstone Arsenal in Huntsville
New Construction Homes Go Fast in Huntsville--But We Still Have Them!
Even with all the challenges facing investors in 2021, RealWealth® has the experience, connections and know-how to identify the best real estate markets, find inventory within these markets and help our members buy income-producing investment properties.
The housing market hasn’t been able to keep up with the rise in Huntsville’s population. That’s a big reason existing home inventory continues to be near-impossible to find and new construction is in such high demand.
Leah Collich, another Investment Counselor at RealWealth® adds about Huntsville, “A rapidly growing white-collar workforce has driven property values up and made it a more competitive housing market to enter.” Collich goes on to say, “New construction homes in this market come at a higher price point, but offer the potential for less maintenance and vacancy costs.”
Huntsville is an Ideal Market for Appreciation Investors
Investment Counselor Joe Torre shares why he likes Huntsville and what investors should expect in this market. “Huntsville is an ideal market for appreciation investors looking for long-term equity growth. The rent-to-purchase ratios in Huntsville aren’t the best (around 0.7%). But that’s somewhat mitigated by Alabama’s second-lowest property tax rates in the country.”
Ready to Invest in Huntsville?
Investors are facing new challenges everyday. A lack of housing inventory, a lumber shortage and the rising cost of materials, to name a few. But none of these variables should get you down. With the help of our network of real estate experts and property teams located in markets all over the country, RealWealth® takes the guessing out of the investing process. All markets, neighborhoods, properties and property management teams are thoroughly vetted, so investors can feel confident about what they’re buying.
New construction inventory doesn’t last long in today’s real estate climate. Don’t miss out on a great opportunity to buy an income-producing asset in an appreciating market like Huntsville. Connect with your Investment Counselor and reserve your property.
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