Under normal circumstances, historically low borrowing costs, rising home prices, and high buyer demand would be a cause to celebrate in the real estate world, but low inventory and supply chain problems have hindered the hot U.S. housing market with declining home sales. The resulting fall-out is causing a drag on the GDP and creating pressures on supporting industries like energy.
What You Will Learn
When you finish this article, you will:
- Be aware of the economic forces that are creating the current problems in real estate and the energy supply chain
- Understand the close relationship and dynamics between the housing and energy markets
- Have some idea of which direction the energy sector is going in relation to the housing market
Why the U.S. Housing Market is Struggling?
The U.S. housing market is suffering from a demand glut. At the beginning of this year, inventory began at an alarmingly low level of 2 or 3 months of current sales. Almost all of the home sales inventory is under construction.
With a 23.6 percent increase over the past 12 months, the median price for homes is rising because of a mixture of high buyer demand and a low supply of homes available for sale. Realtors are struggling to match eager buyers to homes in a post-Covid-19 pandemic market hampered by unusually high building material costs and a lingering reluctance by homeowners to put their homes up for sale.
Impact on the Energy Supply Chain
Despite slouching home sales, the current backlog of inventory and increased rental property demand have put home builders under considerable pressure to produce. In addition, the building industry is coping with COVID-19 pandemic-produced labor shortages at sawmills and ports, resulting in shortages in lumber and many other building-related materials.
Used as a base for paint, drain pipes, flooring, and roof shingles, crude oil’s price has increased 80% since October, causing a rippling effect throughout the home building sector. Plus, copper for water and electrical pipes has risen to a third of its normal price. As a result, material producers like Sherwin-Williams have passed the higher costs of transportation, labor, and raw materials onto their customers.
Also, the energy utility industry is struggling to accommodate the growing migration of big-city dwellers to more spacious states. Existing electrical grids are struggling to keep pace with new home starts. For example, the overburdened power grids in Texas recently caused several power plants to go offline.
What This Means for Your Money
The bright spot in real estate market news is inventory has recently increased from 3.6 months in January to 5.1 months. Also, the enormous millennial generation is entering the home-owning age cycle. Most housing market forecasts predict that these two factors will result in a strong and lasting home sales rebound.
If you own energy investments, a healthy housing market and robust demand for fuel, power, and building supplies can increase growth potential and decrease downside risks in your investment holdings. For more information, visit Eckard Enterprise’s resource center to learn more about energy investing.