Feet On The Street – The Latest 8/11
It’s all Surging: Homes Sales and Suburban Sprawl, COVID-19, Material Prices and Looming Shortages
For this edition of Feet on the Street, our content comes from multiple companies within and around the building industry. We hope you enjoy!
Everything feels hot right now, and it’s not just the weather. The initial three-month COVID-19 hibernation is behind us, and activity across the board feels “normal.” In many cases, it is stronger than the pre-COVID market. However, nothing is as normal as it seems.
For perspective, we engaged firsthand with clients in the Western and Central United States.
Sales for Days
Mortgage rates hit another all-time low, and it’s the eighth record low so far this year. According to Freddie Mac, the average interest rate on a 30-year fixed rate mortgage fell to 2.88% That’s the lowest level in nearly 50 years. The 15-year fixed rate mortgage dropped to 2.44%. The additional purchasing power these low rates provide to homebuyers are fueling strong sales and propelling the market forward.
According to a leading, new homes sales report, Southern California sales are up 20% year over year with the majority of the sales occurring in May-July 2020. Remember, last year at this time, sales were really good.
“Inventory levels are historically low. A publicly traded homebuilder sold 72 houses last week. California homes sales are way up.”
“HVAC is working on 13 model complexes and plumbing is working in 9 model complexes. The phase releases and rollovers are pouring in!”
Retail construction is also very strong, in particular, stores and models. “7-Eleven is on a tear. Their plan is to build and open 400 stores across the country this year.”
Feet on the Street verifies the same and continues to see this as well as strong numbers in drive-thru stores. “Starbucks, Chick-Fil-A and now Panera Bread are strategically expanding their footprint across targeted markets.”
“Right after the July 4th holiday, it was around July 7th– 8th, multiple subcontractors saw steep spikes in employees testing positive for COVID-19. In Riverside, two jobs were shut down completely as each superintendent and multiple subcontractors’ workers all tested positive. Now, the infection rates seems to have peaked.”
To his point, two weeks ago, I was out to a social-distance dinner with friends when I received an email that four framers had tested positive that week on a Los Angeles site I inspected three weeks prior. You can’t help but wonder, Have I been exposed?
It was scary and still is.
A client’s project in the Coachella Valley has also experienced COVID-19 infections. “Our grader has three guys out. We lost him for one week. Our fire sprinkler sub’s entire crew was exposed.”
Feet on the Street learned that on a large construction project in Northern California, a framing contractor’s employee was exposed and, as a result, the decision was made to pull 300 framers off the job until such a time that it was safe to return. The job was brought to a complete standstill.
Lastly, we recently arrived at a Los Angeles jobsite to discover that 90% of the workforce was not wearing masks and the city’s protocol requirements were completely ignored. Unbelievable!
A privately held builder who was buying out subcontracts on his remaining phase told us: “In June, lumber crested over $800 board foot per thousand for the first time ever. I watched lumber go up and up. Historically in the past, pricing drops after a run up. Two days ago, after watching it for three weeks, I locked in pricing. It cost $8,000 per house more over the previous phase. That’s $2.50 per square foot! Luckily, we’re still in good shape.”
“Materials are up 2-2.5% of revenue. That is very different and much higher than cost.”
“We’re hearing from our suppliers that inventory levels will be tight in the fourth quarter 2020. These materials are made in China, and we are preparing now for shortages.”
Red-hot sales and starts; COVID-19 exposure and infections; material increases; and the beginnings of over-seas shortages.
Every week, we are grateful for your time and help in making this important information available to our industry. Stay safe and healthy!