S7, Bonus Episode: Residential Construction Market Update 2025

SEASON SEVEN, BONUS EPISODE | TRANSCRIPT

KIM (00:09.144)
Hi everyone, this is Kim Hibbs with the Art of Custom Podcast along with Melody Meiners. We thought it would be very interesting to come to you from the International Builder Show in Las Vegas because we're getting more more information about what's going on with the current economy and how it might affect the decision to build a custom home or when to build a custom home. Melody, it's always good to have you with us.

MELODY
And it's very nice to be in Vegas.

KIM
Although you did say your feet are tired, so you've been walking a lot of miles, participating in the show, lot of great educational seminars, lot of booth space. The kitchen and bath industry show is here, international builder show is here, lots of booth space, but that's not what we're here to talk about. We're here to talk about the economy because there has been some changes. And we'd like to welcome to the podcast Alexis Hibbs.

If that last name sounds familiar, it's because she's my daughter. She's been working with us at Hibbs Homes now for several years. And she recently attended a seminar in the St. Louis area where the chief economist for the National Association of Home Builders, Robert Dietz, was in town. He always comes every January and talks to the group in St. Louis about what to expect with the economy. So Alexis, it's nice to have you here as well.

ALEXIS
Yeah, it's good to be here.

MELODY
So I think a lot of people are interested to know what is going to happen with building prices is number one because of changes with the economy.

KIM(01:30.446)
That's a good place to start because it's changing. We originally were thinking that building prices were going to remain relatively stable until there's been quite a bit of talk in the news of late about tariffs. There's still nothing that is firmed up, so we don't know exactly what's going on, if it's going to be tariffs with Canadian imports, Mexican imports, China. Now there's even talk that maybe the European Union will see some tariffs there.

So there's still a little bit of uncertainty, but what's not uncertain is I actually was having dinner last night with our lumber supplier out of the St. Louis area, Steve Newman, who is with Chic Lumber, and they are already seeing the impact of possible tariffs with their pricing of lumber. It's already starting to go up.

Now, I want to make sure everybody understands we're not talking about increases like we had during the pandemic where lumber prices went from 400 all the way up into the, you know, 1800 price range. So it's not going to be dramatic like that. But he expects about a 7% to 10 % increase in the price of lumber in the months moving ahead until the whole tariff situation gets settled a little bit. We're seeing the prices are slowly starting to increase with some of the other commodities, with some of the other building components, if you will. Nothing dramatic, but starting to see that trend. And hopefully once we get a clearer picture on what might happen with tariffs, maybe those prices start to back off if those tariffs are not going to be implemented.

Other building prices, as I talked about, it's been a very good time to build up until now because prices have remained very steady after the pandemic. Lumber prices went back down to where they should be, right around $400 per thousand lineal board feet. Other prices have not backed off much, but the good news is they really haven't increased either.

MELODY
Kim, do we know anything about what's going to go on with interest rates and things like that? Has there been some discussion about that?

KIM (03:28.076)
Yeah, unfortunately again the news there is not positive either. Last year during Robert Detz's comments in the St. Louis area, he was predicting that interest rates would be down into the fives by this time. And as we all saw, know, right now interest rates are still in the upper sixes. And the challenge we're running into right now is inflation. Everybody thought inflation was going to back off by the end of last year and the Fed was going to keep cutting the key interest rates. They did not, as a matter of fact.

We have not had a rate cut. We just had one recently, but we have not had the rate cuts that were expected. And if you think about heading on into later this year and into next year, there's still a lot of uncertainty. Now, Robert Dietz just this week has come out and said that he believes that by the end of this year, we should see interest rates back into the lower sixes, maybe around six. So that's a good barrier. Anytime we can hit that threshold of 6 % or even a little bit lower.

I think it gives a lot of people confidence in the economy, confidence to move forward and build a new home. It's just taking us longer to get to those levels simply because the inflation has kind of come back and has put a pause on the Fed reducing interest rates.

MELODY
Alexis, you also have an interesting background because you are a realtor as well. And so what can you share about the existing home market kind of being in both sides of the real estate market? What's that going to do to home sales and new construction do you think?

ALEXIS
Yeah, it's very interesting because right now the new home sales or new construction is actually more affordable than going out and say buying an existing home. So we've been seeing a lot of people who have been building rather than going and buying an existing home. Now that interest rates are starting to drop off, that will flood the market a little bit more. We'll see more houses on the market and so that'll shift. We'll see more existing homes on the market rather than new homes.

It's interesting you asked that question because right now, mean a few years ago, it was absolutely a buyer's market. There was a frenzy, everybody was trying to buy. That has now switched. It's now becoming the owners, the sellers that are benefiting more. But Alexis is right. When those interest rates start coming down, that's going to help both sides of this market, whether it's an existing home or the new construction homes.

ALEXIS
And one of the things that is the most difficult in the new home process is buying land. And so what do you know about the land market, not only in St. Louis, but do you have kind of a picture of what's happening across the United States? Yeah, there is a big shortage of land. We can't find land to build on, whether it's new custom homes, developers, anything like that. Land is definitely a shortage. And so we're seeing a lot more of infill housing, those houses that are a little bit older, aging out, getting knocked down and rebuilt as these new homes. So land is still hard to find.

MELODY
It kind of sounds like doom and gloom right now. I know you guys have some good news for us, don't you?

KIM (06:39.148)
honestly, the reason we're doing this is because we needed to update the market conditions. Yes, it's a little disappointing interest rates haven't come down. Yes, it's a little disappointing mortgage rates haven't come down. Yes, it's disappointing we have pricing pressures due to tariffs. But all of this will be settled out as we head towards summer and then as we head toward the fall. We've talked about this in our podcast, Melody. How long does it take to prepare to build a house?

MELODY
I always say to start about two years out from when you want to move in.

KIM
Exactly and so think about it the design phase the planning stage the budgeting the permitting is going to take at least six months So do not put your project on hold thinking that you know We're not going to be able to make this happen because of all these headwinds instead Start the process now because by the time you're ready to build by the time you're ready to to sign off on your your financing things are going to be in a much better position so our Recommendation is we just wanted everybody to understand that yeah, it's challenging, but it should not stop you from

Continuing to look for an existing home if you want to just understand. It's no longer a buyer's market It's more of a seller's market and also understand that if you're building a new home It takes a long time to plan and prepare take those steps now while there's uncertainty You can still decide to put off your building down the road if you want one other word of advice though always remember we have yearly pricing increases sometimes twice a year July and January are when the manufacturers try to pass on their price increases, so

So don't paralyze yourself thinking that there's too many headwinds now simply because you can't outweigh the traditional, the yearly price increases either.

ALEXI (08:19.242)
Also, I know we say lumber pricing is going to go up, but lumber pricing right now is actually back to the pre-pandemic low. So although lumber is going back up, it's still not as much as it was during the pandemic.

KIM
It's been good to be here. We've gathered more information from lot of the sessions and seminars going on. Just keep the faith. It's really a very good time in the housing industry. And just continue with your plans. Just go in with a little bit more information and your eyes wide open and continue forward with all of your plans.

MELODY
And don't forget, you guys can email us or give us a call if you have any questions and we'll see you guys later.

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