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14 | M R EP O RT COVER STORY dating back to the previous hous- ing crisis of 2007-2009. "Since the Great Recession, there has been a shortage of approximately 1.6 million new homes built in relation to demand," Stone said. "So, we've been experiencing a fairly dra- matic shortage of homes for a long time. We were very optimistic around this time last year that we were going to see builders ramp up activity. Builder confidence, builder attitudes, and desires went up, and if you look at the end of the year, the numbers of permits and applications also went up." However, the number of fin- ished homes did not. "That's where the impact is hitting the market," Stone added. "It's stretching out the length of time it takes to build a home, and it's also increasing the cost of that home. We'd initially thought we could be back to a good supply- demand balance in three to five years. Now it looks like it will take longer." Thomas Showalter, CEO of Candor Technology, has experi- enced the effects of the supply chain issue first-hand. "In September of 2020, I personally attempted to get some home repairs accomplished, and my builder reported that he could not respond before six months," Showalter said. "And again, a full year later, in September of 2021, when I attempted to purchase and install a home theater system, my contractor could not promise any equipment deliveries before April 2022." As the spring turned to the summer of 2020, the market began to change profoundly as construc- tion deadlines were missed in light of many states mandating stay-in-place orders. "Construction timelines expanded due to lack of timely material delivery and the availabil- ity of appliances began to shrink," said Jon Maynell, President of Advanced Data Corp. "Buyers who traditionally selected their appliances midway through a build were asked to select them up front—at the very beginning of the build or before construction even started—to ensure they were delivered before/by the projected completion date. Once delivered, buyers often found that the price of appliances had increased, a new eventuality for which build- ers and lenders had to make provisions." As these prices rose, a majority of these costs were passed onto the consumer, but all in the hous- ing chain were impacted. "Ultimately, and unsurprisingly, consumers absorb the bulk of the cost increases caused by supply chain issues, as builders, contrac- tors, and real estate investors build these costs into the purchase and rental prices of properties they're bringing to market," said Rick Sharga, EVP of RealtyTrac. "But everyone in the ecosystem is impacted to some extent: build- ers won't be able to scale up as rapidly as they'd like in order to meet demand; investors may have to absorb some of the costs, thus limiting ROI; and even contrac- tors may find themselves unable to move forward on projects, reducing their income." As Ken Dicks, Director of Appraisal Compliance at valuation fintech Reggora added, "Buyers typically bear the cost of supply- side constraints, as new home pricing will take into account current and anticipated costs to construct the product. Builders and developers bear some risk of material cost volatility, as con- struction periods for a new home can extend beyond a six-month time-frame." The New Reality D elays and disappointment fol- lowed for homebuyers over the span of the next few years. A market that seemed like it was the ideal time to take advantage of record-low rates was met with an ever-shrinking list of homes for sale and unprecedented bidding wars as homes began to spend less and less time on the market. Data from the National Association of Realtors (NAR) found that since 2019, home prices have risen 30%—approximately $80,000 for a typical home—while housing inventory has declined to under one million units available for sale. "As long as there's the kind of supply and demand imbal- ance we're seeing today, prices are going to continue to rise," Sharga said. "Unchecked, this will eventually lead to buyers opting out of the market due to afford- ability issues. This may already be happening, as many newly formed households are renting rather than buying—despite nearly seven million home sales in 2021, homeownership rates only moved up by one tenth of a point. This has led to increased investor activity." RealtyTrac estimates that nearly 17% of residential home purchases in the third quarter of 2021 were made by investors, an increase of nearly 40% from the prior year. "This limits supply for home- buyers even further," Sharga added. "It's important to note, however, that the shortage of homes available for sale was a problem before the pandemic- driven supply-chain issues began; builders had been largely AWOL for almost a decade. The fact that the builders decided to ramp up activity at precisely the time that the supply-chain disruption occurred is just incredibly ironic, and very problematic." The Well Runs Dry I n terms of new construction, the price of materials and over- all availability of supplies were principal issues faced by builders. A recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index report found building material prices as the most significant con- cern for 96% of builders in 2021, with 91% of those polled believing this issue will linger over the next 12 months. Yet another issue cited by build- ers in 2021 was the scarcity of Source: HMI Special Survey, NAHB EcHP Top 10 Significant Problems Faced in 2021 and Expect to Face in 2022

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