Blog :: 2021

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Lumber Takes a Fall

Builders and home buyers paid the price as supplies dropped, but the outlook for new construction is improving.

Key takeaways:

  • COVID-19 dramatically disrupted the lumber supply chain affecting home building.

  • Lumber prices have been highly volatile since the spring.

  • An uptick in home remodeling has further squeezed the lumber market and contributed to rising prices.

 

By Daniel Bortz

Last spring, the coronavirus pandemic ground several large lumber mills in the U.S. to a halt—and homebuilders suffered the consequences.

Take Jesse Fowler, for example. Fowler, the president of Tellus Design + Build, a full-service general contractor based in Southern California, said in an interview with REALTOR® Magazine in November that lumber prices for his company had “gone through the roof.” “It’s tough on our business because we have to play the middleman and negotiate lumber prices for our clients,” Fowler said. In one instance, he said, a framer charged one of his clients who was building a new home $90,000 over what was originally estimated to compensate for rising lumber costs.

The COVID-19 crisis and the constraints it has put on the nation’s lumber production aren’t the only factors that have jacked up lumber prices. “Our lumber tariffs with Canada are high, and our domestic lumber industry can’t supply everything that we need,” says Robert Dietz, chief economist at the National Association of Home Builders.

In addition, “the wildfires in the West certainly haven’t helped [lumber production],” says Mike Theunissen, co-owner of Howling Hammer Builders, a custom home builder and remodeler based in Mt. Pleasant, Mich., and chairman of the building materials subcommittee at the NAHB.

Dietz says small homebuilders have had a harder time coping with the price hikes. “Larger builders are feeling less of an impact,” he says.

And optimism is on the rise more broadly. After reaching their peak last September, lumber prices began to fall, according to Monthly Composite Prices reports from industry tracker Random Lengths. “What we had was a shock to the supply system at the start of the pandemic, but now that lumber production has ramped back up, lumber prices have gone back down,” says Mark Rasmussen, a forest economist at Mason, Bruce & Girard, a natural-resources consulting firm, during an interview in early November. Yet just a few weeks later, prices were on the rise again, in response to both favorable building conditions in the fall and suppliers stockpiling materials for an expected busy construction year ahead.

Another bright spot for general contractors: “The remodeling business is busy right now, and you don’t need as many materials when remodeling” as you need to build a new home, Theunissen says.

However, with Americans spending a lot more time at home, many people are taking on home improvement projects themselves. As of mid-August, 61% of U.S. homeowners said they’d taken on a home improvement project since March 1, a NerdWallet survey found. Shawn Church, editor of Random Lengths, says the do-it-yourself remodeling boom contributed to rising lumber prices. “The strong DIY activity generated a demand for wood products that left supply and demand in an acute imbalance,” he says. “Wood products prices surged as a result.”

When lumber costs surged, Theunissen says, his company was forced to make some changes. “We started putting escalation clauses into our contracts for lumber,” he says. “For example, a contract might say that if lumber costs rise by more than 10% before our work is performed, then the customer must pay the difference... We hate to invoke escalation clauses, but there’s only so much we can absorb,” he adds. Howling Hammer’s contracts also started allowing for delays in materials delivery. “If it takes an extra four weeks to do a project because materials arrive later than we expected, then that’s just the way it is,” Theunissen says.

The Impact on New-Home Buyers

Of course, rising lumber prices also affect buyers purchasing new homes. Sales prices of new homes have risen sharply over the past year. As of mid-October, higher lumber prices had added $15,800 on average to the price of a new single-family home, Dietz says. According to Census Bureau data, the average sales price of new single-family houses sold in September 2020 was $403,900, up from $384,000 in January.

Homebuilders are grappling with a number of other challenges, Dietz says, most notably labor shortages and tighter mortgage lending requirements for home buyers and homeowners seeking home equity loans or lines of credit.

There’s little evidence that higher prices have kept large numbers of buyers away. Among affluent buyers, the demand for new construction remains high. Hans Wydler, an associate broker at Compass who works with buyers and builders of custom homes in the greater Washington, D.C., area, says, “Buyers [here] don’t care about lumber prices... That’s just not on their radar.”

Some buyers are being priced out, though. “I have a build job going on right now where the cost went up $50K due to the sudden increases in lumber and other building materials,” says Sheila Smith, an agent with RE/MAX Capital City in Boise, Idaho. “Boise is still being flooded with newcomers from bigger metropolitan areas, mostly California. They can afford the higher-priced homes, and our inventory is down 80% from 2019 overall.”

On a national level, housing starts hit a seasonally adjusted annual rate of 1.53 million last October, up 14.2% from October 2019, according to the Census Bureau. Moreover, homebuilder optimism in November hit its third straight record high, according to the NAHB/Wells Fargo Housing Market Index, which has been tracking homebuilder sentiment for 35 years.

Possible Solutions

Although future lumber prices can be difficult to predict, experts say a couple of actions may be able to curb lumber costs in the U.S. For one, “we need to find ways for the domestic lumber industry to produce more, perhaps through recruiting more workers or through new forest policy,” Dietz says.

Second, the U.S. government must negotiate a better lumber agreement with Canada to address the high lumber tariffs that are currently in place. “That’s been a longstanding issue,” says Dietz, “but I think it can happen sometime in the next two years.”

Lawrence Yun, NAR’s chief economist, sees reason for optimism. “Lumber prices should moderate and decline somewhat in 2021 as a result of more harvesting and a possible reduction in tariffs to foreign products,” he says. “That will help home building and generate local economic growth.”

 

By Daniel Bortz: Daniel is a freelance writer who specializes in writing about personal finance but also covers real estate, home improvement, travel, careers, small business, and even weddings.

How the Pandemic Is Affecting Where Buyers Move

In these turbulent times, one thing is for sure: The COVID-19 pandemic has drastically changed the real estate market. Low inventory and high demand continue to drive up home prices as buyers explore new markets and consider new places to call home that previously may have been off the table.

By Kaycee Miller: Kaycee manages marketing and media relations for Rentec Direct and shares industry news, products, and trends within the community.

Trends have emerged in terms of popular destinations as a result of changes brought on by the pandemic. Here are a few factors that are expected to continue influencing buyers in 2021.

Remote Work: The New Normal

While remote and virtual work was a growing trend prior to COVID-19, now, nearly a quarter of the U.S. population is currently working from home because of the pandemic. Many experts predict a substantial percentage of the workforce will continue to work remotely in some capacity even after life returns to normal, which means buyers are looking in locations that previously wouldn’t have been a viable option.

With buyers no longer tied to locations because of their jobs, they’re more often considering a move based on lifestyle and quality of life. And if the trend of remote work continues at its expected pace, more buyers will be willing to live further away from their jobs, foregoing downtown areas and public transportation options because they no longer have a daily commute. As a result, homes with a dedicated office space and other work-friendly features will grow in demand.

In San Francisco, some tech company are now allowing employees to work remote indefinitely. I know one buyer who’s now considering moving across the country to North Carolina. There’s not only a substantial difference in housing prices compared to the Bay Area, but he will also be able to keep his current salary. As you can imagine, this will have a massive impact on his family’s income and savings—and it’s something he never would have considered pre-pandemic.

High Costs Contributing to Migration

With people spending more time at home than ever before, many are weighing the pros and cons of price per square footage and opting for more space in a rural location as opposed to less space in a highly populated area.

A growing number of city-based buyers are also considering moving to the suburbs for the first time in pursuit of lower housing prices. And many people have been forced to move during the pandemic as a result of income or job loss.

The draw of popular downtown areas will not likely disappear completely. Job opportunities and proximity to restaurants, entertainment, and culture will continue to attract buyers. However, 2020 did result in more homeowners and renters moving to the suburbs, especially areas with a high number of COVID-19 cases.

Prioritizing the Great Outdoors

As Americans seek easy access to outdoor recreation options, there have been major increases in the number of people moving into states like Utah, Oregon, New Mexico, and Idaho this year, perhaps looking for more distance from others.

The changes this year have been so abrupt and drastic that we have no precedent for examining these trends. What we do know, however, is that the pandemic is ongoing and its complete impact on the real estate industry remains to be seen. The trends we are tracking may or may not be permanent, but it’s worth keeping a close eye on population movement, as these metrics will definitely influence what the marketplace will look like in 2021.

 

5G, Smart Masks: Emerging Tech for Real Estate in 2021

CES 2021—the tech industry’s annual mega-show—moved to an all-digital format this year due to the pandemic. About 1,800 exhibitors have been taking part in the virtual show, which Consumer Technology Association (CTA)® has hosted all week. Companies showcased products via virtual press conferences, Zoom rooms, and an all-digital expo floor experience.

By Melissa Dittmann Tracey, Contributing Editor for REALTOR® Magazine.

Technology companies are racing to respond to the coronavirus crisis with products intended to help you connect remotely. Robots, augmented reality, and new filtered air solutions for the home are among the tech developments the real estate industry is watching.

Here are a few trends to watch:

1. Greater emphasis on cleanliness.

Portable air filters, robotic vacuums, and ultraviolet light sanitation products are trending. Companies are adding touchless and voice-enabled tech, such as for smart locks and faucets, to prevent the spread of germs at home and in the workplace. Several companies are presenting air purification systems—some portable—to help filter out harmful germs in indoor environments.

Homebuilders are paying attention to buyers’ increased interest in healthier homes, too. For example, Taylor Morrison’s TM LiveWell model home highlights improved ventilation for indoor air quality, filtered drinking water, and nontoxic building materials containing fewer chemicals. More than a third of potential home buyers say they want a new home with better health and wellness features, Erik Heuser, chief corporate operations officer at Taylor Morrison, recently told BUILDER.

2. 5G connectivity serves as a backbone for innovation. More than 67 million 5G smartphones are expected to ship in 2021, according to CTA. As 5G service becomes more available across the country, tech firms believe the super-fast connection speeds—10 times faster than 4G—will pave the way for rapid innovation in smart-home tech, autonomous vehicles, artificial intelligence, and connected cities. “5G is so much more than just another tech innovation,” Hans Vestberg, CEO of Verizon, said Monday at a session during CES 2021. “It makes other innovations possible.” Vestberg added that there are about 14.2 billion connected technology products currently supported on 4G networks. The field is predicted to grow to 55 billion products by 2025, which will require the support of 5G networks, he said.

3. Interest grows for robotics and drones. As the pandemic made less physical contact necessary, companies increasingly turned to robotics and drones, said Lesley Rorhbaugh, director of research for CTA. She predicted accelerated adoption of more robotic technology across industries. “These solutions are becoming necessary to stay safe and protected,” she said. Retailers are turning to robots to stock store shelves. Hygiene robots like the Xenex LightStrike disinfect commercial spaces using UV light. Drones are increasing in demand for contactless deliveries, she noted.

In real estate, could robot-led home tours become more commonplace? In 2017, real estate startup Zenplace began offering such tours, enabling a remote real estate agent to speak to potential customers in a video chat while the robot shows the house, gliding from room to room. Since the pandemic, “we are seeing unprecedented demand for our platform across 35-plus states,” Jason Green, a spokesman for Zenplace, told CNBC in March.

4. As more information heads to the cloud, security concerns grow. Fifty-nine percent of global enterprises expect their cloud usage to increase due to the COVID-19 pandemic, according to Flexera’s 2020 State of the Cloud Report. But as more data moves to the cloud—including home sales—security remains a paramount concern. Eighty-three percent of companies cite security as their top concern as more processes move to the cloud, according to the report. Tech companies are rushing to develop greater encryption technology to better protect business data. In real estate, cybersecurity remains a top concern due to the growth of wire fraud scams, but you can step up your defense against hackers.

5. Smart-home tech adoption accelerates. Voice commands via Amazon Alexa and Google Home are simplifying the use of smart-home devices. And the call for cleaner homes is fostering an interest in smart-home products for air filtration. Kohler is debuting several motion sensors and touchless operations for kitchen and bathroom faucets to prevent the spread of germs. Also, greater artificial intelligence is being added into smart-home tech to recall user preferences and make suggestions. AI is being incorporated into everything from television sets for content suggestions to washer and dryers for recommend wash cycles. The largest growth in smart-home products centers on smart displays, doorbells, and appliances, CTA notes in its tech forecast.

6. Augmented reality overlays the real world. By 2030, tech firm IDTechEx predicts that the augmented, virtual, and mixed reality markets will surpass $30 billion. Koenig foresees rapid growth in augmented reality, which is the projection of digital information like graphics, text, and sound onto the real world. Beyond smart glasses, AR is increasingly being used in smartphone applications—an advantage over having to wear bulky VR headsets to immerse in 3D realities, Koenig notes. The real estate industry is dabbling in AR by offering up different views of staged homes or scenarios for remodeling. Buyers can use AR apps to better visualize a space according to their own design tastes. For example, Australian startup RealAR offers 3D configurations of properties using AR via a smartphone app. The technology could also help buyers better visualize properties when viewing them remotely.

7. Masks get smarter. A mask is becoming an essential part of your everyday wardrobe. Several companies are touting high-tech masks with added air filters for safety. Rorhbaugh says some smart masks may be able to track environmental conditions around you, such as alerting you on your smartphone when you’ve entered an area with high pollution. LG is launching the PuriCare Wearable Air Purifier, a battery-operated face mask that features two H13 HEPA filters with dual fans. It also comes with a case with UV-LED lights that can kill harmful germs and charge the mask between uses (price information yet to be released). Binatone’s MaskFone a medical grade N95 mask with built-in wireless headphones and a microphone. It includes voice control using Alexa.

Binatone’s MaskFone

 

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