[1]Steve Adamo, President of National Retail Production, Embrace Home Loans
Realtor.com recently announced [1] that home prices in March 2022 have hit another record high of $405,000. A portion of this price hike continues to be due to the rise in supplies and raw materials factored into the cost of building a home.
Recent gains in lumber, combined with limited availability of numerous types of building products, has forced building materials to rise 20.4% year-over-year [2], and 31.3% since January 2020.
The National Association of Home Builders (NAHB) reports [3] that the Producer Price Index (PPI) for softwood lumber increased 2.6% in February, following a combined 28.9% increase over the two months prior. Since reaching its most recent trough in September 2021, the price of softwood lumber has increased 79.5%, and Random Lengths data [4] has found that the “mill price” of framing lumber has more than tripled since late August.
While these costs linger, prospective buyers face continued affordability issues, as lumber production has not kept pace with demand. Despite record-high lumber prices, tariffs placed on protecting domestic producers are increasing costs for builders and home buyers.
Steve Adamo [5], President of National Retail Production for Embrace Home Loans [6], recently sat down with MReport to discuss these bottlenecks in the industry and what is being done to remedy these issues.
At Embrace, Adamo is responsible for increasing the company’s retail sales force and expanding its retail footprint. He is an accomplished mortgage banking and financial services executive with more than 25 years of experience leading companies through periods of strategic growth.
Adamo is a member of many professional groups, including the Mortgage Bankers Association (MBA) executive roundtable and the Metro Boston Housing Partnership, as well as a member of Fannie Mae’s National Advisory Council.
MReport: When did you first notice signs of the supply chain issues impacting the housing market?
Adamo: The housing market was experiencing supply chain issues prior to the pandemic, which only became exasperated during the past two years.
MReport: Will the current shortage of homes available leave a lasting effect on the market?
Adamo: The current shortage will not have a long-lasting effect on the overall market. The absorption rates have consistently been very low, as inventory has been tight. This is likely to continue, however it will not have an adverse impact on the overall housing market. The housing market is going to continue to see normalized appreciation.
MReport: What sectors of the mortgage marketplace have been impacted the most by supply chain issues?
Adamo: The construction and renovation sectors have clearly experienced supply chain issues related to products and labor.
MReport: Who is absorbing the bulk of the costs associated with the lack of supplies?
Adamo: As evidenced in the overall increase of market inflation, the bulk of costs are being felt by the consumer. Costs of goods and services have continued to increase, and labor has been scarce, which has increased labor costs as well.
MReport: What can be done on a temporary basis to remedy these supply chain issues?
Adamo: It appears that the durable goods side of the supply chain is getting a bit better, while labor shortages are still challenged. That is not to say that we’re out of the woods on the products side, but we are seeing a bit of improvement. In the near term, continuing to free up the delivery of products to the consumer markets can help.
MReport: When do you foresee these issues subsiding and the market returning to levels of normalcy?
Adamo: It’s hard to predict when markets begin to normalize. We know the Fed increased rates at their March meeting [7], and there is recent sentiment of a full point increase into July. That means we could see an increase of .50 basis points at one meeting and three .25 basis points in subsequent meetings. This quick increase would likely slow inflation but raise the cost of borrowing. The markets will likely normalize at slightly higher borrowing costs, but this may better control the costs of goods and services.