FRONT PORCH

See The Wall Street Journal article. 

By Rebecca Picciotto

Neal Communities prepares for pricing changes while trying to keep costs down

Pat Neal and his team at home builder Neal Communities are bracing for President Trump’s potential tariffs. They have spent months trying to anticipate and prepare for the fallout.

About 7% of the goods used in residential construction are imported, primarily from Canada, Mexico and China, which face Trump’s tariff threats. That could increase the cost of building a single-family home by $7,500 to $10,000, according to the National Association of Home Builders.

“It’s crunchtime,” said Zander Devlin, who oversees the Sarasota, Fla., company’s purchasing division. “A very uncertain thing is about to happen.”

Neal Communities’ mad scramble in the final days before the prospect of new tariffs illustrates how these duties are poised to ripple through the housing industry. It is an indication of how these tariffs can affect the cost of a new home and stress the overall housing market, which recently has been showing some signs of life.

March 25 (Eight Days Out): Lumber in Limbo 

To dodge the potential lumber price spikes, Neal planned to switch to U.S.-grown Southern yellow pine instead of his traditional Canadian spruce, which faces additional tariffs of 25%. While he can likely absorb the potential cost increases for the firm’s current projects, he will probably have to raise prices for new homes.

To avoid that scenario, Neal plans to adjust his project plans to account for the firmer, less elastic material of the American pine. He met last week with his truss supplier who proceeded to re-engineer the blueprints for the trusses of 57 of his home models. Each redesign costs an extra $600.

“I was looking for price reductions,” he said. “I didn’t get price reductions.”

March 26 (Seven Days Out): Warning Letters Stack Up

Before his kids woke up for school, Steven Wojcechowskyj, the vice president of purchasing of the company’s Southern division, sipped his coffee and skimmed his email. This morning, like many others since the tariff proposals were announced, he spotted a warning letter from a supplier forecasting a potential price increase.

This time it was for electrical devices like switches, outlets and panels.

Wojcechowskyj estimated that he’s received about 50 of these warning letters over the past several months, each of which requires him to re-evaluate material contracts he thought were locked in.

“It feels like I’m doubling back a lot,” he said. That time would have been spent planning future projects.

March 27 (Six Days Out): Gambling on Inventory

Devlin, the company’s vice president of purchasing, was supposed to be spending his time on vacation, fishing in Peru. But he found himself taking calls with his plumbing-fixture supplier. The supplier notified him of a price increase of up to 12% for things like sinks and bath faucets.

He would like to estimate all of his costs for the coming year and place orders in advance. But that requires making bets on an uncertain future.

“People are starting to put dollar figures on what is going to happen April 2,” Devlin said, “without knowing what’s going to happen April 2.”

Garage doors, for example, used to cost the company $1,283 per unit, but its supplier warned that the tariffs would make them up to 18% more expensive.

His team has been building elaborate inventory spreadsheets since February to track all the materials and their corresponding price increases. But they can only do so many projections.

That’s one reason he has been stockpiling things like garage doors, roofing, flooring tiles, electrical fixtures and appliances, along with copper and aluminum wires.

But that leads to other problems. The company doesn’t have a lot of extra storage space to hoard surplus inventory. During the Covid supply-chain disruptions, they squeezed their stockpiles into their offices and conference rooms. They assumed that would be a one-time event.

“We don’t want to order all this material and put it in the shop, not knowing what the next six months are going to look like,” Devlin said.

There isn’t much empty warehouse space available so they are thinking of setting up mobile storage rooms or shipping containers on their land, though that could add costs and time to their projects.

At the same time, it’s a full-time job trying to keep up with the various materials that are already being affected by the threat of tariffs.

“It makes our job extremely busy,” Wojcechowskyj said. “You kind of scratch your head like, I didn’t know that tiny component would be affected.”

March 30 (Three Days Out): Canceled Sales

For Neal’s sales team, the end of each month is usually a gold rush. With the April 2 tariff deadline days away, Sunday felt like the opposite. Christina Potts, a sales manager within the luxury home division of Neal’s company, learned from one of her associates that a customer had backed out of a land lot reservation yet again.

The prospective buyer told Potts’s team that they were canceling because they wanted “to see what might happen in the next few months.”

That’s not normal. Potts said customers’ reasons for canceling tend to be much more concrete: divorce, job loss or an unexpected relocation. But this kind of reasoning has become increasingly common, she said, reflecting consumers’ doubts about making a big purchase in the uncertainty of the current economic climate.

“Buyers are taking longer or not deciding,” she said. “It’s a big combination of the uncertainty of the world right now.”

March 31 (Two Days Out): Shifting on the Fly

Ten days after Jennifer Joslin, the head of Neal’s design team, learned of a price increase to the China-sourced black pigment in her roofing, she was still waiting on the alternative roofing materials to arrive.

Her team had to go back to reselect other roofing materials and will have to make sure they align with the existing color palettes.

Meanwhile, Joslin checked in with the suppliers for other items like countertops, which she knew were imported from Canada. She dreads the uncomfortable conversations with customers who ask for a certain material that is no longer an option.

“If they have their heart set on something, it’s just a difficult conversation with a buyer,” Joslin said.

April 1 (One Day Out):

A day away from the tariff announcements, the staff at Neal Communities was still trying to shore up its business. But employees could do little more than hope for the best at this point.

“We’re a day away,” said Devlin. “It’s really just waiting to see what Trump comes out and says.”