More buyers are turning to the new-home market for greater inventory options, but builders are struggling to keep pace. Some smaller firms have temporarily stopped signing new contracts in order to catch up with existing orders, according to reports. Larger home builders are experimenting with blind auctions and shifting away from fixed prices, and they’re increasingly accepting bids on contracts and putting customers on wait lists.

Rising construction costs and delays for items such as appliances, cabinets, and Sheetrock are causing longer timelines to complete projects. To deal with the market pressure, about 19% of builders say they are delaying sales and home starts, and 47% are adding escalation clauses to contracts to recoup higher material costs, according to a National Association of Home Builders survey conducted in April.

Financial flexibility is increasingly needed on the parts of buyers who are flooding the new-construction market. Contracts for new homes typically lock in the sales price prior to construction. But as costs soar, some builders are limiting the number of contracts they sign each month. This strategy aims to mitigate the burden of construction costs, which can spike dramatically between the start and finish of one project.

Source: “Housing Is So Hot That U.S. Builders Have to Stop Taking Orders,” Bloomberg (May 20, 2021)