Real Estate News & Commentary

Pandemic-Fueled Supply Chain Woes Causing Big Problems for Builders

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COVID-19 is creating a maze of confusion on the building front. As I build homes in the Chicago market, let me take a moment to share the overall construction material crisis I am experiencing.

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It is my hope you can use the following information to properly evaluate the direct increase in construction costs and the indirect additional expenses you might experience due to material shortages, helping you to protect your profit margins and the overall health of your projects.

Industry-specific factory shutdowns and material shortages are causing drastic supply and demand fluctuations that are extending lead times while pricing is on the rise. And this crisis expands past Chicago—the entire country is experiencing the same.

At times like these, it’s important to keep a close eye on analyst reports and commodities trackers. Most are confirming that the global pandemic will continue to cause construction industry disruptions through the end of the year and solidly into 2021.

Suppliers are facing numerous coronavirus outbreak challenges across their labor and distribution platforms. This means that developers won’t be able to move at the expedited paces they are used to or that the marketplace is demanding.

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Lumber Woes

America was already facing a reduced lumber supply as 2020 began, but the continued pace of building projects and a slowdown in imports have made lumber a hard-to-find commodity. If your project is lumber dependent, get ready for some sticker shock.

The price of lumber is on a dramatic tear, trading over 100% higher since January 2020. Weyerhaeuser and Boise Cascade recently announced an immediate 10% increase in their engineered wood products (EWP). And we may start seeing more price increases to accommodate fluctuations currently being experienced in the market.

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Lead times on delivery have also been pushed back by several weeks or even months as lumber mills have slowed production or even shut down due to quarantine or social distancing measures. These two factors mean you can expect to add thousands of dollars to the cost of construction projects.

Masonite interior doors are averaging eight to 10 weeks for delivery compared to two weeks back in June. Cabinetry is following suit. Other millwork, particularly items produced in Brazil, also have growing lead times. Many suppliers are reporting very limited or no supply of cedar decking.

Manufacturing Challenges

Just like the lumber shortage, the manufacturing industry is also experiencing a pandemic-influenced slowdown in product availability. With so many items coming from overseas facilities, delays in global shipping mean shortages in existing products or the introduction of new products.

worker standing on roof installing new tiles

  • Door hardware: Schlage has little or no inventory available, resulting in empty shelves and long lead times. Many others have parts produced overseas and are starting to see some long lead times.
  • Plumbing supplies: Kohler’s lead times have doubled, and Toto is seeing 2-plus-month delays.
  • Roofing materials: Roofing Contractor has been tracking the availability of roofing materials amid the pandemic-related factory shutdowns, forecasting pricing spikes in the near-term. CertainTeed stock is almost depleted in the Midwest with no word on new availability. Although there are GAF shingles available, anything not in stock color is facing 2-3 months lead time.
  • PVC decking: Trex is currently out of stock with no available replacement time. Azek is available in limited supply with future material lead times of 2-3 months.

Don’t forget that even though products are often assembled in the U.S., most components are produced overseas. And anything produced overseas, particularly in China, is currently experiencing backlogs between 2-4 months. Unfortunately, most suppliers are unable to give any lead times because of the volatility in the supply chain.

Related: Refi Madness: With Historic Low Rates, Homeowners Scramble to Refinance Mortgages

Proceed With Caution

So, what does all this mean for you as a builder? Be extra cautious and use common sense when providing bids for projects that may be delayed for several months from the time the proposal is submitted. If you haven’t started a new project yet, particularly one that is heavily dependent on any of the materials that are experiencing an extreme spike in price or depleted stock, you might consider pausing until prices even out.

When you’re building, time is money, so be aware that the supply chain delay may mean having to hold onto inventory longer than expected. Make sure your investment strategy accounts for this hold time.

Questions? Comments?

Join the conversation below!

Sue Hough is passionate about everything construction and loves building. For most of her adult life, Sue has been a residential builder in the Chicago market and founder of
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    Manuel Prado from Midland, MI
    Replied 23 days ago
    Wow thanks for sharing and opening up our eyes to this issue. We are experiencing those delays here in Mid-Michigan. It seems like a good time to put a hold on those big rehab projects. I just had to go with a different color shingles on the detached garage of a fixer upper because the wait time was 2 months.
    Sue Hough Developer from Chicago IL
    Replied 23 days ago
    Thank you Manuel, I am happy to help in any way. I strongly believe, unless your profit margins can bear a 20%-30% increase in materials along with a much slower project, it is time to re-evaluate. The production will correct itself, but it will take time.
    Dana F. Investor from Chicago, IL
    Replied 23 days ago
    Sue, thanks for the great article. I am also in Chicago. I have been an appraiser for seven years and am currently trying to purchase my first flip, but from everything I've heard, it sounds like any decent contractors are booked through the winter. Is the backlog so bad that you think I should wait until 2021, or will there always be some reason not to get into the game? Also, how do I signup for your Rehab Academy? Thanks!
    Sue Hough Developer from Chicago IL
    Replied 23 days ago
    Dana, Good luck Dana on your first rehab!! If your project is not heavy in lumber and you are aware of longer material delays, I say go for it. It is a sellers market right now, so that may make up for the construction shortage. Many contractors are extremely busy at the moment and we are booking up faster than the early 2000’s. Having said that, I expect some of the labor force to come back very soon as the stimulus-unemployment benefits are ending or have ended forcing many tradesmen back to work. That factor alone will elevate some of the backlogged work.
    Daniel Sylvia
    Replied 22 days ago
    I'm looking at a full rehab of a large two family. With home values high and no current mortgage on the home, I was hoping to get a big home equity loan and do everything. Luckily I don't have a deadline. Maybe I should get a large HELOC now and wait for things to turn around. Any thoughts for this new real estate investor? Great article with impeccable timing! Thank you!
    Sue Hough Developer from Chicago IL
    Replied 21 days ago
    Please see my comment below, it did not link to your message. My apologies
    Sue Hough Developer from Chicago IL
    Replied 21 days ago
    Daniel, If you can line your subcontractors up, go for it. Here is how I am working on some larger projects at the moment; plan on ordering your doors and trim 8 weeks before you need them, same goes for cabinets. If you need a deck start shopping your market now to see what is available and be open to using materials you had not originally considered. Drywall is expected to become scarce very soon, so keep a close eye on that, as you may need to stock your building before you actually need it, but buy it when it is available. Last, secure your roofing materials now and have them on hand. Thank you for your kind words, and good luck!
    Jerry W. Investor from Thermopolis, Wyoming
    Replied 4 days ago
    Lat summer I was buying 1/2 inch OSB for $8 per sheet for roof decking, right now it is over $30 per sheet. I have no idea how anyone can complete and construction project at remotely close to an old bid. Covid19, a class 4 hurricane, multiple hurricanes, and burning thousands of houses on the west coast. Don't expect lumber to drop anytime soon.
    Sue Hough Developer from Chicago IL
    Replied 2 days ago
    Jerry, you are 100% correct! This is a very tedious time for construction throughout the United States. I am anticipating this to continue until early next year, with some relief coming by end of this year. Production should be back to “normal” shortly, then we can weed through the bottle neck. (Just as a reference, I can only guarantee my pricing for 30 days in contracts, which is the shortest time span I have every imposed.) On a positive note, I do know one thing; we are a very resilient people and will adapt and flourish