In the past 12 to 18 months, the escalating prices of lumber and homes have become dominant topics of discussion for builders, contractors, and homebuyers alike. As the industry grapples with uncertainties about the future trajectory of housing prices and lumber costs, insights from unexpected sources, such as the insurance industry, can shed valuable light on the situation.
Unveiling Perspectives from the Insurance Industry
The property and casualty insurance sector, a major player in the insurance landscape, has a unique vantage point. To accurately price policies, the industry must possess prescience about future trends and challenges. A recent article in this industry publication offers a comprehensive view of the factors influencing lumber and building prices.
Unpacking the Supply Chain Challenges
The article delves into the intricacies of the supply chain, citing challenges with barges, ships, and port congestion. While acknowledging some positive signs in the past 12 months, the piece underscores that production delays due to supply chain disruptions are just one facet of the problem. Companies are struggling to meet the surging demand for not only wood products but also essential components like glue, paint, appliances, and various other building supplies.
Alarming Statistics: Housing Shortage and Industry Attrition
Crucially, the article highlights a staggering statistic: the building industry needs a minimum of 1.5 million new housing starts annually to thrive. Shockingly, this hasn’t been achieved since the real estate crash of 2007. Even more concerning is the revelation that there is a substantial deficit of four to five million houses in the market, considering current demands.
Adding to the complexity, the construction industry is grappling with a shortage of new talent. The younger generation is not entering the building trades at a rate sufficient to replace those retiring. This issue is particularly pronounced in small, family-owned businesses that struggle to find qualified replacements. As a consequence, companies may resort to compromising on hiring standards, a trend noted by the insurance industry.
The Insurance Industry as a Bellwether
The insurance industry’s predictions serve as a bellwether for broader market trends. Their forecast that the lumber and real estate industries will remain behind the curve provides builders and contractors with invaluable insights into what the future might hold. These insights can inform strategic decision-making, especially in pricing contracts appropriately to ensure robust gross profit and revenue.
Navigating Challenges: A Call for Prudent Planning
Builders and contractors are urged to navigate the challenges of the modern construction and contracting industry with foresight. While pricing contracts, it’s crucial to consider potential difficulties in securing subcontractors or employees. Adding an extra fudge factor or margin to account for unforeseen circumstances, such as higher costs or delays, can provide a buffer against the realities of the evolving construction landscape.
As the lumber and real estate industries continue to navigate uncertainties, leveraging insights from unexpected corners, like the insurance industry, can be a strategic move. Builders and contractors equipped with a nuanced understanding of the challenges and trends are better positioned to thrive in an ever-evolving market.