Even in the hottest U.S. housing market in more than a decade, new home construction has turned into a frustratingly uncertain and costly proposition for some homebuilders. 

Rising costs and shortages of building materials and labor are rippling across the homebuilding industry, which accounted for nearly 12 percent of all U.S. home sales in July. And as building a new home gets more expensive, some of those costs are passed along to buyers. 

Across the nation’s economy, prices having spiked this year amid shortages of manufactured goods and components, from cars and computer chips to paint and building materials. 

The constraints on homebuilders are unwelcome news for homebuyers, already facing historically low levels of resale homes on the market and record prices. Economists worry many first-time homebuyers are getting priced out of the market. The erosion in affordability is one reason the pace of home sales has been easing in recent months. 

“Addressing these disruptions is a moving target. You’ve got labor, supply chain – buyers are set and lenders have them ready to go. [The industry is] trying to catch up with that demand,” said Matt Mayberry, executive director of the New Hampshire Home Builders Association.  

He described the pace of work in homebuilding right now as “sprinting.” 

“People are just waking up, working, coming home, sleeping. Waking up, working,” he said. 

Supply, Labor Shortages Bite 

The pandemic set the stage for higher prices and shortages of construction products. Factories went idle temporarily and are now trying to catch up on production at the same time that demand has intensified due to an unexpectedly hot housing market and a surge in home remodeling. 

Lumber futures jumped to an all-time high $1,670 per thousand board feet in May. They’ve since dropped to $634, about 10 percent higher than a year ago. Still, wholesale prices for a category of homebuilding components that includes windows, roofing tiles, doors and steel, increased 22 percent over the last 12 months, according to an analysis of Labor Department data conducted by the National Association of Home Builders. Before 2020, it was typical for such aggregate prices to rise a little over 1 percent annually. 

Those conditions are likely to persist. Robert Dietz, chief economist at the NAHB, said he’s heard from builders that “there are ongoing challenges, and in some cases growing challenges, with flooring, other kinds of building materials.” 

“What we find is that builders are buying all the cabinets for all 26 homes at once, or at least five or six at once, and storing them in a secure location so they can keep moving forward,” NHHBA’s Mayberry said.  

With the Delta variant of the coronavirus running rampant worldwide, there’s “a bubbling panic” among builders about more supply-chain disruptions, he said. 

“They’re waiting for the other shoe to drop,” he said. “All these manufacturers are doing everything they can, too, to keep their workforces healthy.” 

Higher building materials prices aren’t the only factor driving up builders’ costs. A chronic shortage of skilled construction workers has worsened during the pandemic, forcing builders to factor in higher labor costs. 

Inflation is being felt across the economy. Consumer prices rose 5.3 percent in August from the same month a year ago. At the producer level, inflation jumped an even steeper 8.3 percent, the biggest annual gain on record. 

Demand Too Strong to Slow Production 

The Federal Reserve has said it believes the surge in inflation will be temporary. For now, though, the rise in building materials costs and the lingering supply crunch are making everything from houses and apartments to commercial buildings more expensive. 

To manage, many builders are slowing the rollout of new homes. Zonda Economics, a real estate data tracker, estimates some 85 percent of builders are intentionally limiting their sales. 

“They’re trying to make sure they have the land ready, the workers ready and the materials ready to be able to actually delver the homes that they’ve sold,” said Ali Wolf, Zonda’s chief economist. 

New single-family home starts dropped 4.5 percent statewide in August, according to the New Hampshire Association of Realtors, citing Commerce Department figures, a decline Mayberry attributed to the state’s sclerotic land-use approvals process. New Hampshire’s builders are working hard to manage buyers’ expectations, he said, keeping them appraised of delays and realistic timelines for completion. 

But demand is so high, Mayberry said, any under-construction home a buyer walks away from gets snapped up by another buyer in short order. 

“We’re booking a year, year and a half out to start a home,” he said. “The demand is so high, that if a buyer drops out there’s a new one like that before the ink’s dry on the release.” 

Even with inflation, builders are benefiting from the hottest housing market in years. Demand for new homes has strengthened, while the number of previously occupied U.S. homes up for sale has fallen to historic lows, pushing prices higher. 

The median price of a new home sold in July climbed 18.4 percent from a year earlier to $390,500, an all-time high, according to the Commerce Department. For existing homes, the median price jumped 17.8 percent in July to $359,900, according to the National Association of Realtors. New Hampshire’s statewide median single-family sale price surged to $400,000 in August, a 35.69 percent jump over August 2019, according to The Warren Group, publisher of The Registry Review. 

Staff writer James Sanna contributed to this report.