In times of an economic boom there is always a waiting list for everything from models of new cars to clothing styles. And in the car plants not only are the assembly lines going full blast but if they slow it's because the parts manufacturers can't keep up with the demand. This is the same with new home construction because there are only so many skilled builders to go around and they can only work as fast as the supplies used for the construction arrive on the site. So what happens when the demand is not there?
In times when the media is telling people how bad things are getting the bargain hunters are beginning to stir. Moguls like Warren Buffet and J.P. Morgan did not become rich by running away from the stock market when big blue chips like IBM and various oil stocks were in a depression. Instead they bought at bargain prices. This works the same with real estate and building a home. Because when prices of homes begins to fall new home construction slows and good contractors become more available and at a cheaper price.
Cash Flow
Businesses, even the biggest ones, have to be liquid. In other words they have to have money to operate on a daily basis. In fact this is a big problem in the car industry because in tough times the big ticket items and luxuries are passed over for more sensible purchases.
Many contractors have skilled crews that have worked for them for a long time. It takes a lot of time and money to get good group of people up to the skill level where they can build a quality home with minimal supervision. So, if the contractor does not have the volume of work to keep them busy then manpower, along with equipment and other trappings, have to be sacrificed in order to pay for the essentials like keeping the business solvent.
Suppliers
After Hurricane Andrew hit south Florida in 1992 almost every lumber producer in North America was running full tilt to supply the are with new building materials. In subsequent disasters through the rest of the decade and well into the next more disasters also required an unexpected demand from the building industry. As a result construction materials spiked during these periods and remained higher than normal. Wood, concrete, roofing and especially copper have seen record high prices in the past few years driven by the demand for reconstruction materials and the spike in new construction in other parts of the country. In addition the spike in oil prices almost doubled the price of paving a driveway and roofing supplies also were on a steep curve.
In a slowing economy building materials are not only in a surplus state but delivery schedules are almost instantaneous. This not only means that contractors can get the supplies cheaper but also there is less time spent waiting for them so that the home goes up quicker saving even more money.
Labor
In many factory situations collective bargaining has assured workers that they will get a certain amount of money for time spent at the plant. This almost never waivers and, in fact, in boom times it is often increased. The residential builder does not work in this way. With custom builders labor is usually hired as the work increases and let go if there is a slow down. As mentioned before, a good contractor hates letting people go because he or she knows that good labor is the future of the company. The contractor also knows that building is cyclical and sooner or later the demand will come again.
Quality
In times of high demand the subtrades also have to pay more for scarce labor so their price to the contractor will go up. Another downside is that sometimes the extra labor force is not fully trained and so homes are built on a steeper learning curve because there are so many new people. Mistakes occur and fixing them becomes a time problem, often long after the home has been occupied. And sometimes the fine quality of a new home is never achieved and the homebuyer has to take legal action to get the job finished.
In addition, when there is a building boom schedules get behind because of late supplies and also because many subtrades take on more than they can handle. This can also affect the price as well as the quality. Maintaining a balance while waiting for new business is the tricky part of the business.
The Buyer is King
So while others are preaching gloom and doom the smart homebuilder is in the driver's seat. Contractors need work to keep going and to keep the talent pool together so this is a time to get great deals. In addition, look for a developer with vacant land in a favorable area.
Because the building industry works on buyer demand think carefully about building. New home construction may cost less than one that is already built and sitting across the street. This is because the seller is already committed to the bank for a certain amount and can't sell it for less.
Posted by: TrustedProsSuggested Reading For You
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