The monthly NAHB/Wells Fargo Housing Market Index often includes a set of “special” questions on a topic of current interest to the housing industry. In January 2013, the special questions asked builders about the problems they faced in 2012 and expect to face in 2013. The survey was divided into 5 different sections with significant problems faced by the builders. One section covered problems related to building costs. A year earlier, similar questions asked about problems faced in 2011, so it’s possible to trace the evolution of problems builders faced in 2011, 2012 and expect to face this year.
According to the latest survey, more than three-fourths of the builders expect building materials prices to be one of their significant problems expected in 2013, up substantially from 46 percent in 2012 and 33 percent in 2011. Second is cost/availability of labor, a significant problem 51 percent of builders expect to face in 2013, up from 30 percent who said they faced the problem in 2012 and only 13 percent in 2011. Nearly half of the builders expect cost/availability of developed lots to be a significant problem. This is also up from 24 percent who said they faced the problem in 2012 and 21 percent in 2011.
Against the backdrop of impending health reforms scheduled to go into effect in 2014, 42 percent of the builders expect costs of health insurance be a significant problem in 2013. Like many of the cost categories further down on the chart, problems with health insurance were slightly less common among builders in 2012 than in 2011, but expectations indicate this small improvement is likely to be reversed in 2013.
The tendency for cost problems to become more widespread among builders—especially the top 3 categories of costs (materials, labor and lots)—is something you might expect as residential construction recovers from its trough. At this stage of the cycle, however, rising costs are beginning to emerge as a significant obstacle to a further and stronger recovery.