D.R. Horton CEO Auld calls it “foreign to us,” but his company is turning away qualified buyers due to construction supply shortages and a thin labor force.

NEW YORK – To catch up with the rapid number of sales they’ve made over recent months, many home builders have stopped taking new orders – an unprecedented move in the industry.

Builders face numerous challenges just to complete projects already in the pipeline – material costs are surging or its in short supply, and labor shortages are holding activity back.

“Through our history, to have somebody walk into our models and [to have to] tell them, ‘We don’t have a house for you to buy today,’ is something that is foreign to us,” says David Auld, CEO of D.R. Horton Inc.

The move could also cost new-home buyers more money. If builders restrict the number of homes for sale, it prompts additional increases in new-home prices. In June, the median price of a newly built single-family home was $361,800, a 6.1% increase from a year earlier, according to the Commerce Department.

Some individual builders report even higher price jumps. For example, Taylor Morrison Home Corp. has reported its average sales price in the second quarter surged 9.8% over the past year. The average price for new orders jumped 31.8%, The Wall Street Journal reported.

“Because builders are intentionally not selling, it’s creating a lot of pricing power,” says Alan Ratner, managing director at Zelman & Associates, a real estate research and advisory firm.

Some builders still selling are limiting new orders, while others are selling homes on a first-come, first-served basis – or holding lotteries. Other builders ask buyers to bid above list price on new homes, another unprecedented move akin to the existing-home sales market. Still others wait until homes are partially or fully built and pricing at levels then available on the open market to avoid locking in a price months ahead of time.

Source: “Home Builders Are Restricting Sales, Pushing Up New Home Prices,” The Wall Street Journal (Aug. 10, 2021) [Log-in required.]

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