East Tennessee home builders will continue to see high demand and high costs in 2021.
Knoxville ranked No. 32 on Realtor.com’s list of top housing markets, forecasting 7.9% sales growth and 5.7% price growth year-over-year in 2021.
U-Haul saw a 25% spike in new arrivals to Knoxville in 2020, according to its annual fastest-growing arrivals list, which tracks one-way moves.
That increase in new residents, plus a low inventory of homes for sale and low interest rates, means demand for buying homes is likely to remain high and the cost of new homes will increase.
“Most home builders that I know are raising their prices coming into 2021,” said John Cook, president and CEO of Cook Bros. Homes. “I don’t know anybody that didn’t, and I don’t know how you couldn’t.”
Residential permits in 2020
Ashley Burnette, executive vice president of the Home Builders Association of Greater Knoxville, said he does not anticipate a slowdown. Builders are busy and expect a good year in 2021, he said.
Knoxville-Knox County Planning collects residential permit data from the City of Knoxville, Knox County and the Town of Farragut. From January to November 2020, there were 2,046 residential permits filed, including for multi-family, attached units and single-family.
Of that figure, 1,643 were detached housing units. The number of detached residential permits in 2019 was 1,800, according to Knox Planning.
Ron Worley, president of Worley Builders, closed 52 homes in 2020, up 25% from 2019. He plans to build a similar number of homes in 2021.
Worley Builders specializes in affordable, one-level homes across Knox County. The company is pre-selling its third community, Cara Cade, a 34-lot subdivision at the corner of Lobetti Road and the future home of the Schaad Road extension. It’s in the planning stages for its fourth community, Lobetti Landing, a 120-lot subdivision that will break ground this spring.
“We anticipate more of the supply chain delays and a little bit of the chaos and the delays and waiting,” Worley said. “But we also anticipate a very similar year with regard to sales.”
More residential permits filed in East Tennessee
In the larger area market, which includes Anderson, Blount, Hamblen, Jefferson, Loudon, Monroe, Roane and Sevier counties, 3,551 residential building permits for single-family residences and duplexes were filed in the first three quarters of 2020, up 16% from the first three quarters of 2019, according to data compiled by real estate research company The Market Edge.
“(The industry is) strong,” said Dale Akins, president of The Market Edge. “Super stout, can’t keep up with demand.”
Cook Bros., which foFwocuses on building homes for consumers 55 and older, opened two new communities in Loudon County in 2020, and focuses most of its work outside Knox County, where land is more readily available and less expensive.
Cook said the Knox County parcels he did evaluate in 2020 were expensive, steep and required significant engineering costs.
“There’s a fair amount going on in Knox County in pockets, but the surrounding counties there’s lots of home building going on that folks in Knoxville probably don’t even know about,” Cook said.
Cook Bros. opened two new communities in mid-2020 in Loudon County, The Grove at Cedar Hills in Lenoir City and The Grove at Chatuga Coves.
He’s not the only builder making moves in Loudon. Through the third quarter, residential permits there were up 22% year-over-year, according to The Market Edge.
Cook said his customers are willing to commute into Knox County as a tradeoff for a quieter area with less traffic and more house per dollar.
That strategy appears to be working for Cook Bros.’ growth. In 2020, the company built 45 homes; Cook anticipates building about 75 homes in 2021. Nationwide, residential construction added more than 15,000 net jobs in November, according to the National Association of Home Builders (NAHB).
“This year and frankly the next several years we’re just going to see a really strong housing environment in our area,” Cook said.
Inflated prices and long delays for supplies
Meeting that demand will continue to be a challenge for home builders thanks to rising costs and backorders, many of which were caused by shutdowns early in the COVID-19 pandemic.
Materials from appliances to doors are on back order, and many clients are forced to reselect everything from siding to light fixtures. Depending on the manufacturer, Cook said windows take 15-18 weeks to be delivered. Cook Bros. typically builds a home in about 20 weeks.
“If it’s manufactured, we are scratching and clawing to get it in our hands to get a home closed,” Cook said.
North American lumber prices, which hit an all-time high in the third quarter, increased 160% from April to September, according to woodprices.com.
“A stud, just one 9-foot, pre-cut stud that you use to build a wall, we’re paying nearly three times for that stud what we paid for at the beginning of 2020,” Cook said. “I’m not talking about a 10% increase or a 20% increase, I’m talking about a 300% increase for something that I use hundreds of.”
Home prices will increase
The median sale price of a single-family unit in Knoxville in 2020 was $229,900 up from $192,500 in 2019, according to the Knoxville Area Association of Realtors. In 2017, it was $160,000.
“Most home builders that I am aware of and know are raising their prices anywhere from 3-5% to try to keep up with the inflation they’re facing in material costs and labor costs in our area,” Cook said of 2021 costs.
Home prices in Knoxville increased by 11% year-over-year, according to third quarter data from the Federal Housing Finance Agency Price Index. The U.S. average during that same time increased by 7.8%.
According to the National Association of Home Builders and Wells Fargo Housing Market Index, which rates single-family home construction market conditions, the national residential market was rated a 90 on a 100-point scale in November 2020.
The index takes into account current single-family sales, single-family sales for the next six months and prospective buyer traffic. That number fell to 86 in December, attributed to increasing concerns about housing affordability.
The NAHB forecast that resurgent lumber prices, limited lots, supply chain challenges and a skilled-workforce deficit would all contribute to higher costs and longer construction periods in 2021.
“The deployment of a vaccine, while representing good news for the overall economy, will place upward pressure on interest rates,” the NAHB said in its 2021 outlook. “In turn, the combination of higher prices and rising rates will price some households out of the housing market next year.”
The outlook does forecast continued increases in single-family home construction in 2021, but the rate will slow down. By November 2020, sales of new single-family homes had fallen 11% over the previous month but were still 20% over the previous year.
Medium-sized cities saw the most gains in single-family homes in the third quarter of 2020, with more than 15% growth over the previous four quarters, according to the NAHB.
This article originally appeared on Knoxville News Sentinel: East Tennessee home builders ‘scratching and clawing’ for materials to meet demand