Supply Chain Issues Ease

While the challenges with inflation and supply chain issues have had a significant impact on the construction industry, including luxury home construction, it is difficult to predict with certainty whether this sector will recover in the short term.

On the one hand, luxury home construction may be more resilient to the challenges of inflation and supply chain issues than other segments of the industry. High-end home builders may have more flexibility in their budgets to absorb higher costs for materials and labor, and may also have access to alternative supply chains and resources that can help mitigate delays and disruptions.

On the other hand, the challenges facing the industry are widespread and affect all sectors, including luxury home construction. While some developers may be able to weather the storm, others may choose to delay or scale back their plans, which could impact the availability of luxury homes in the Seattle area.

Ultimately, the recovery of the luxury home construction sector will depend on a range of factors, including the trajectory of inflation and supply chain issues, the availability of skilled labor, and the economy's overall health. The below article is from Sotheby's International Realty, Luxury Outlook.

Luxury Real Estate, Luxury Real Estate Market, New Development, Thought Leadership

Luxury Outlook | Supply-Chain Issues Ease, Yet Prices Remain High

By Sotheby's International Realty | January 31, 2023

Supply-chain issues are still rippling through some U.S. and global markets, while others are showing marked signs of improvement. In Singapore, supply disruptions persist, as underlying factors such as the Ukraine war and China’s relatively strict Covid policies remain, says Han Huan Mei, director of research, List Sotheby’s International Realty, Singapore. “Further escalations in the Russia-Ukraine conflict could further impact global supply disruptions and exacerbate inflationary pressures through higher food and energy prices.”

In the U.S., the city of Seattle, Washington, offers a good example of the many changes and challenges brought on by the Covid-19 pandemic.

Between 2010 and 2020, downtown Seattle was the fastest-growing large city in the U.S., with more than 27,000 multi-family housing units delivered, but the “pandemic created many direct and indirect headwinds to the pipeline,” says Dean Jones, principal and owner, Realogics Sotheby’s International Realty.

“Inflation and supply-chain issues resulted in hard costs of 30% higher than pre-pandemic, and developers still report challenges getting certain products from overseas,” Jones says.

Also, construction financing has gotten tighter, and rents have “skyrocketed based on the supply and demand imbalance, but landlords still suggest the higher cost of operations isn’t keeping up with rent growth,” he says.

As a result, “developers aren’t so much changing their product offering. They simply aren’t breaking ground,” Jones says. There are no plans for new development delivering in 2023, one in 2024, and none in 2025, he says.

In New York’s Hudson Valley, Raj Kumar, associate broker, Four Seasons Sotheby’s International Realty, says his personal experience is that supply-chain shortages have been alleviated somewhat. However, “prices for both materials and labor are significantly higher, with materials going up more than labor costs.”

In the Jackson Hole, Wyoming, market, “it’s gotten much better in the last three to six months for the construction trades—the ability to get appliances and lumber,” says Brett McPeak, associate broker, Jackson Hole Sotheby’s International Realty. “There is no lumber mill here. Every piece of building material is getting trucked in from somewhere else.”

Now, he says, “it’s down to weeks to wait for something, not months or years.”

“Things are better,” says Marilyn Wright, global real estate advisor, Premier Sotheby’s International Realty in Asheville, North Carolina. “The price of construction has stabilized, but it isn’t going down. Appliances are still somewhat of an issue.”

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