HOUSTON – (Realty News Report) – Ralph Bivins of Realty News Report: The latest episode of The Ralph Bivins Project podcast features an interview with Tim Drone of J. Patrick Homes.
RALPH BIVINS: Welcome, this is Ralph Bivins of Realty News Report with the Ralph Bivins Project. We’re here today to talk with Tim Drone, president of J. Patrick Homes, which does a lot of business in the Houston area and has for quite some time. The firm builds in suburban communities and closer to downtown. I want to talk with Tim about a big thing that has surprised me lately. Builders say they can’t build houses fast enough to keep up with sales. That immediately sounds like high BS, like someone’s overselling it. But as a skeptical journalist, this time, I don’t think so. We are in a strange place. Sales have been good, but there are a lot of issues, a lot of change going on right now. Tim, where is the housing market at now? Where are we going?
TIM DRONE: Well, I don’t know where we are going. I can definitely tell you where we’ve been during the past couple of years since the shutdown and the reopening, and all the supply chain issues. And you’re right, we can’t build homes fast enough. So, we are trying to focus on maintaining our business and trying to keep up with our build-to-suit contracts. We’re also focusing on keeping up our spec inventory. And that’s been a challenge.
Secondly, I don’t think you’re overselling it by saying we are having a hard time keeping up. The market is very short – short of resale. We have no competition on resale.
RALPH BIVINS: Zero inventory?
TIM DRONE: Yes, we don’t have a lot of lots in front of us for new home starts. We are just maintaining our pipeline, managing our business to make sure we have something to sell tomorrow. Mortgage rates are increasing. It remains to be seen if this helps slow the pace. In our price point, there is no pushback by our buyers or a slowdown in sales. In reading the newspapers and talking to others, you can see some of the sales reports in the lower price points, and some of the sales have slowed.
RALPH BIVINS: The mortgage rates are up to about 5.7 percent. They were 3 percent at the beginning of the year. They’ve gone up so fast. It’s scary.
TIM DRONE: It is scary. The saving grace in the new home market is the fact that there is no supply. It’s a supply issue. And I don’t see any end in sight as far as this correcting itself.
As far as the mortgage rates go, I was curious about this as it came out of the gate, when the rates jumped up. I wondered how it would affect our sales and other companies’ sales globally. All the other people I have talked to in the industry expected sales to slow down, but I don’t think anyone has seen that happen yet.
RALPH BIVINS: Your homes are basically in the range of $475,000 up to a couple of million. Upscale, but not starter homes. So, every mortgage rate increase of an eighth of a percent knocks someone out of the arena for qualifying.
TIM DRONE: Even though we are in the higher price point, everyone has a budget. We still haven’t seen people coming to our design studios and pulling back on making decisions about whether to upgrade to wood floors or to make a decision about selecting other options.
RALPH BIVINS:What about supply chain issues? Where are the shortages?
TIM DRONE:(Jokingly) Everywhere!
RALPH BIVINS:There have been reports of shortages of windows, garage doors, lumber. Any building materials in particular that are impossible to get today?
Latest Supply Shortages: Tile Grout & Attic Doors
TIM DRONE: Ralph, I’ve had my purchasing manager come and tell me literally every day that something new is in short supply. Attic accesses, for example. A couple of months ago, attic accesses were in short supply. I went to the International Builders Show in Orlando this year. Before I left, I told him: What is it you want me to focus on. He said attic accesses. I walked around the Florida Builders Show and talked to a couple of companies that had attic accesses. I told them to call my purchasing manager. I asked how many they had and one of the companies said: “We think we have six in North Carolina; we think we have another six in the state of Washington.”
You name it, different day. Tile grout. We are having a difficult time finding tile grout. Every week, my team and I meet with vendors to figure out what’s available and what we have to pull from the design studios. It’s been a learning curve. Every day, it’s something new. It’s been a challenge for everyone.
Lumber. One day, it’s trusses, another day, it’s OSB. It has definitely been interesting.
RALPH BIVINS: And prices. At one time, the price of lumber increased quickly. This moderated somewhat.
TIM DRONE: If you look at the futures market, you’ll see the price of lumber has come down, pretty much mirroring what happened last year. One item that used to cost $1,200 went down to $1,000 and now it is $570 or something. And this happened within the past 60 days. That obviously helps. But this is the futures market. When you are dealing right now with a lumber yard, what you pay is predicated on what they paid during the past month. Then, you still have to find people to take the lumber from the mill to the lumber yard and to the house. The prices of oil, gas, diesel are all high. And it still takes a lot of workers to get the material to the site. You need drivers, and they have to be paid to show up. So, the future tells you one thing, but you still have to get it sourced. All of this adds to the cost of the lumber package.
Tim Drone’s biography
Tim Drone is a veteran of residential real estate, well versed in each facet of the home building industry. Holding a finance degree from SMU’s Cox School of Business, he started his career as a financial analyst of real estate-related entities for Guaranty Bank. He next moved into construction management at Royce Homes before joining J. Patrick Homes in 2001.
There, he has served in many positions, including sales professional, construction manager, sales manager, controller, chief financial officer and executive vice president in charge of sales, construction, accounting, finance along with lot and land acquisition. He was promoted to president of J. Patrick Homes in 2022.
June 21, 2022 Realty News Report Copyright 2022
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THE RALPH BIVINS PROJECT PODCAST
File. Homebuilding. J. Patrick Homes, Lumber. Supply Chain. High Mortgages & No Tile Grout: Builder Solves Today’s Problems. NAHB