Archives for May 2022

Some supply strains in the US are easing, two years after a jump in demand started emptying shelves, snarling shipping and sowing the seeds of soaring inflation.

The line of 25 cargo ships headed to Southern California’s two big ports is less than a quarter of the record backup in January, and spot container rates have dropped almost 20% this year. Flexport Inc.’s average transpacific shipping journey of 102 days is the quickest since November. Delays moving containers out of rail depots in Detroit and Memphis are shorter than they were in September, according to Hapag-Lloyd AG.

But for every sign that a cooling economy will give supply chains room to rebalance, there’s a reason for skepticism. On the East Coast, ship bottlenecks are building again. The dwell time for containers is still climbing at rail yards near Chicago and Kansas City. At 9.6 days in April, the wait to move freight on rail from the adjoining ports of Los Angeles and Long Beach was the longest since July.

The muddled picture is dividing observers. To some, the logistics links between factories and consumers will get stretched again when China allows factories to run full steam. Others sense the start of a longer-term weakening in the demand for goods as inflation erodes purchasing power and spending on services picks up.

Howe Wallace is in another camp — those who’ve given up guessing.

“I’ve stopped just speculating what’s going to happen for the next year,” said Wallace, chairman and CEO of Bartow, Florida-based PalletOne Inc., a large producer of wooden pallets. He said business is “still fairly strong” but the next several months are “too uncertain to call.”

Watching the pallet market is one way to track the economy’s subterranean strength. Here are a few obscure gauges from the supply-chain world that give clues about the degree of the slowdown ahead:

Product Packaging

An oft-forgotten bellwether of activity is the demand for product packaging — corrugated boxes. According to a Bloomberg Green Markets survey that’s yielded data for the past nine months, sentiment of packaging producers has recently gone negative after staying mostly strong for the past two years.

Through the pandemic, the demand for box packaging was so strong that the time from order to delivery peaked at 22 days in February. With order backlogs shrinking, the lead time shrank by three days last month to 14, and industry participants believe it could fall below 10 days by July, according to Bloomberg Intelligence analyst Ryan Fox.

“Things are moderating but will remain better than before the pandemic,” Klaskow said.

Some smaller truck carriers that entered the market recently and now face crippling diesel costs will be forced out of business in a spot freight-market correction, though the contract market has held up much better, Klaskow said. Contractual rates for flatbed trucking excluding fuel surcharges were up 3.7% in April compared with a 13.1% increase in April 2020, he added.

Freight Trains

Former Federal Reserve Chairman Alan Greenspan liked to study old-school numbers like scrap metal prices and railroad shipments. Consumers have purchased a lot of goods since early 2020, so it’s still instructive to monitor how much merchandise and bulk commodities are still crisscrossing the country on trains.

North American rail volume during the first 20 weeks of 2022 totaled 13.5 million carloads and intermodal units, down 3.8% from a year earlier, according to data from the Association of American Railroads. So far this year, intermodal volumes — those goods traveling by sea, road and rail — have largely mirrored 2019 levels but trailed 2021’s traffic amid lingering congestion.

According to Bloomberg Intelligence, the four-week moving average for train velocity has slowed 5%, while dwell time has risen 9%.

The sluggishness doesn’t look to end in the near term. China’s lockdowns might give American railroad operators challenges in the weeks ahead as shipping containers from Asia flood already slammed ports, according to Klaskow.

Shipping Pallets

At Virginia Tech, home of the nation’s leading pallet engineering lab, they claim “pallets move the world,” and it’s not much of an exaggeration given there are almost 2 billion in the US alone.

As goods purchases outweighed services spending over the past two years, prices for the new wooden pallets — the base of a so-called unit load — have jumped 59% nationally since the start of 2020 and are still rising.

Chaille Brindley, editor of the Pallet Profile, says demand is still strong. “Pallet manufacturers and recyclers remain very busy. Many are worried about a downturn that could be coming. But they haven’t seen it materialize yet,” he wrote in a market report this month.

Higher transport costs, severe labor shortages and sustained demand are keeping pallet prices high. For example, in the mid-Atlantic region, a top-quality used pallet might sell for $12-$13, but in the West the price might be $18-$20 if you can find them, according to Brindley.

In some regions, that’s almost double the pre-pandemic cost.

Source: “Supply-Chain Relief Sparks Feud Over Degree of Softer US Economy“

The New Mexico Primary Election is slated for Tuesday, June 7th. This election will determine the nominees for political parties in advance of the New Mexico General Election on Tuesday, November 8th. The winner is the candidate with the greatest number of votes, even if they do not win more than 50 percent of all votes cast.

According to the Albuquerque Journal on April 27th, New Mexico’s independent voters can now show up at the polls and cast a ballot. This new law enacted in 2020 allows voters who are independent or a member of a minor political party to change their registration before accepting a ballot. 

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NM Primary Election will be held on Tuesday, June 7th

Nominees will be determined for the following offices:

House of Representatives (3 seats)

State Executive Offices

• Governor
• Lieutenant Governor
• Attorney General
• Secretary of State
• Treasurer
• Auditor
• Public Education Commission (5 seats)
• Public Lands Commissioner

State Supreme Court

The terms of three New Mexico Supreme Court justices will expire on December 31, 2022. Two seats are up for partisan election and one seat is up for retention election.

Court of Appeals

The terms of three New Mexico intermediate appellate court judges will expire on December 31, 2022.

 View a Full List of 2022 Primary Election Candidates 

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Candidates Supported by RECPAC during the Primary Election

The Real Estate Community PAC (RECPAC) is comprised of Trustees from GAAR and CARNM membership who serve as policy advisors and advocates for REALTORS® in the Greater Albuquerque area.

In anticipation, the RECPAC Board of Trustees, together with NMAR supports a slate of candidates deemed REALTOR® Champions.

As advocates for REALTORS® we are not concerned about party affiliation but instead focus on finding REALTOR® Champions who will make themselves available to work with us to preserve property rights, promote homeownership, and provide a business-friendly community.

RECPAC supports the following candidates and the offices they seek:

House of Representatives

District 12:  Art De La Cruz
District 16:  Antonio “Moe” Maestas
District 26:  Cherise Quezada
District 30:  Kurstin Johnson
District 31:  William Rehm
District 44:  Jane Powdrell-Culbert
District 49:  Gail “Missy” Armstrong

County Commissioner

District 5:  Wayne Yevoli

Congratulations to these candidates who’ve earned the faith and confidence of the REALTOR® community.  We wish them good luck in the upcoming election.

2022 RECPAC Board of Trustees

Paul Wilson, Chair
Carol Bernstein, Vice Chair
Cathy Colvin, Treasurer
Amanda Champine
Tim House
Daniel Kearney
Mike Leach
Damian Maddox
Josh Price

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Voter Resources

May 10:  Deadline to Register to Vote Online

May 10:  Absentee Ballots are mailed to voters. Request an Absentee Ballot Online by June 2nd

May 21 – June 4:  Early Voting. Find a Polling Location

June 7:  Primary Election Day

Click for more Voting and Election Information

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Real Estate Advocacy

REALTORS® are many voices. We are one state. We share the vision.

REALTORS® advocate for policy that strengthens the ability of the public to own, buy, and sell real property. New Mexico members are 7,500 small business owners who live and work in the state. We make a significant economic impact with every home bought or sold.

We believe in protecting private property rights, increasing housing opportunities, and supporting a vibrant business community.

How to Get Involved

One of the easiest ways GAAR members can help is to make your minimum contribution each year to the two groups that advocate all year long on behalf of your Real Estate business. Both organizations are bipartisan and support pro-REALTOR® Candidates who understand the real estate industry.

1.  RECPAC (Real Estate Community Political Action Committee)
The RECPAC Committee is comprised of six appointed GAAR Trustees and three appointed CARNM Trustees. The Trustees, along with Committee Members follow local issues and elections. They work in conjunction with pro-business organizations to assist with Calls To Action or interview candidates for city and county elections.

To invest your minimum yearly amount of $15, contact CARNM Membership at 505-503-7807

2.  RPAC (REALTOR® Political Action Committee)
RPAC is key to protecting home buyers, sellers, and the real estate industry at the Federal level. Your investment supports one of the strongest advocacy organizations in the nation by earning us a seat at the table with legislative and policy decision-makers.

To invest your minimum yearly amount of $15, click here.

While rising interest rates are posing a risk to economic growth, NAR Chief Economist Lawrence Yun expects the commercial market to perform well despite the headwinds, especially in the short term.

During the 2022 REALTORS® Legislative Meetings’ Commercial Economic Issues and Trends Forum, Yun explained that while the commercial market generally follows the overall economy, some things are different this time.

“Outside of the office sector, which is lagging behind as employers allow increased remote work flexibility to keep and attract talent, commercial real estate continues to strengthen,” Yun said. “The industrial sector is booming, retail is turning positive, the hotel industry is recovering, apartments are doing very well, and rents are rising in all commercial sectors.”

Yun added that the residential housing shortage will result in solid rent growth over the next two years, with apartment rents expected to keep rising by more than 10%.

When compared to the challenged office sector, Yun noted that the industrial property market is getting a second wind from the shift to “just-in-case” inventory buildup as wholesale inventories boom.

“With strong demand, industrial rents are likely to keep rising solidly in the next two years while vacancy rates will remain below 5%.”

Though the office sector continues to face challenges, Yun asserted that not all markets are equal.

“While the overall office market is wobbly, some variance exists depending on location. We’ve seen improvement in some midsize markets as companies seek more affordable office locations away from major U.S. cities.”

The volume of multifamily investment in 2021 was the greatest year for any asset class in history, with $352 billion of investments, according to Matt Vance, senior director, CBRE.

“Global economic uncertainty, persistent inflation and rising interest rates have increased the cost of capital and overall capital market volatility,” Vance said. “These conditions have restricted loan proceeds, which has negatively affected asset pricing.”

Vance expects that with the rise in hybrid-working models, employees will spend an additional day or more working remotely when compared to pre-pandemic trends.

“An average work week with 3.5 days spent working in the office would net a 9% reduction in office demand, but that’s if it could happen overnight,” he said. “Future economic growth and job creation will have a balancing effect on the impact of virtual work.”

Yun urged commercial investors to consider land development as an investment opportunity given the scarcity of developed residential lots that are essential to addressing the housing supply shortage. He made an appeal to local governments to ease land zoning regulations and ordinances, which Realtors® reported have become more burdensome.

The National Association of Realtors® is America’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.

Source: “Commercial Real Estate Market Expected to Grow Despite Rising Interest Rates“

Construction companies in New Mexico are facing issues, and looking for solutions, in a market still ensnared by the economic forces of the COVID-19 pandemic.

“They have the trifecta of problems, because not only is it inflation and supply chain, but there’s a workforce shortage, and that has been the case since before inflation or supply chain (issues),” said Carla Kugler, president of the New Mexico chapter of Associated Builders and Contractors.

Supply chain issues took off in February of 2020, when factories in China and Italy shut down in response to the spread of COVID-19, according to Kelly Roepke-Orth, CEO of the Associated General Contractors of America’s New Mexico Chapter. Sporadic shutdowns continue to affect manufacturing.

“Adding to the pandemic-induced problems is a series of unusual mishaps that also interfered,” Roepke-Orth said. “The biggest impact being, for construction, … came from the severe freeze in Texas in February 2021, because that damaged all the petrochemical plants that produce resins for a host of construction plastics. And now the war in Ukraine, right?”

These supply chain complications can cost buyers and builders, as the price of construction material can increase while contractors look for a source.

“I think we have a pretty good idea of what it would cost on the day that the bid is asked for,” said Lawrence Peterson, executive vice president of Bradbury Stamm Construction, an Albuquerque-based regional commercial builder. “The problem is, it’s not going to be that price for very long, so owners are going to have to make decisions to go or not go really quickly – or expect prices to rise shortly thereafter.”

Price increases can affect even the most well planned construction job, Peterson said.

“I think it’s kind of a good time not to be in the prediction business,” he said. “Every time you kind of think that you’re at the top and it continues to rise. It sort of changed the dynamic of what construction inflation is.”

The search for solutions

Local governments can help mitigate inflationary concerns during construction of a project by giving the go-ahead to builders earlier, according to Danielle Casey, president of the Albuquerque Regional Economic Alliance.

“Something they priced out today might cost three times as much in three months, so the faster we can get their permits through, the faster we can get their approvals and the faster we can get inspections done on those developments,” she said.

Supply chain issues are leading some companies to order material earlier than usual and stockpile it to insure access when it is needed.

“The biggest difference when you walk on a job site is the amount of stored materials that you have because you just didn’t trust the supply chain,” Peterson said. “So you have all these shipping containers or covered storage of these various materials, or you have it in offsite facilities because you just can’t depend on the supply chain, the way you used to.”

Ed Zarenski, a construction industry analyst based in Rhode Island, said that this is a new behavior for most companies. It has costs, he said, but not as much as months of delays would add up to.

“When you get nine months into a project and you need materials and you don’t have them in a stockpile and it takes you two to three months to get it, it slows the entire project down,” he said. “That adds costs to the project, because you got to keep your people doing something and they don’t have the materials to complete the job. Stockpiling is a new piece of the puzzle in contracting these days.”

Finding sources of materials closer to home could help alleviate supply chain concerns, Zarenski said, but the feasibility of that depends on the item.

“Concrete is always local. We don’t import a lot of structural steel for construction. So most of the demands for those types of things are local anyway,” he said. “It’s the rest of the building. It’s the doors, windows, roofing materials, appliances, wall and floor coverings, those types of things. Those are the ones that the contractors are having a hard time sourcing and are starting to look for local suppliers.”

Hiring problems

The shortage in the construction workforce is also causing problems. The industry has a deficit of 650,000 workers nationally, according to Associated Builders and Contractors.

“The really unique thing is that it used to kind of seem to be a construction problem,” Peterson said. “Now it just feels like it’s a problem across all of our kind of ancillary construction-related issues like suppliers, supply chains and trucking and just some of these things that are not traditionally construction related, but sort of touch our industry. They’re having labor issues too, which I think makes it even more of a compounding problem.”

Construction associations and companies have programs to attract and train new workers to fill the gaps. Both the ABC and AGC run apprenticeship programs for a variety of construction trades.

“Our apprenticeship numbers are strong, which means the contractors are understanding the value of training, and they’re putting people into training because our apprenticeship numbers haven’t wavered, they’re increasing,” Kugler said.

Homebuilders’ problems

Residential builders are facing the same issues, with added challenges. Details can add months to the timeline of completing a house.

“Windows for example, prior to the pandemic it was a two to three week lead time. It’s now at roughly 16 weeks,” said Brian Mills, vice president of sales at Twilight Homes, an Albuquerque homebuilder.

“Cabinets were five or six weeks,” he said. “Depending on the manufacturer and what’s being ordered, it can be as many as 26 weeks.”

Now, he said, Twilight Homes puts in orders for windows and cabinets as soon as they break ground on a new house. That is not the only thing that Mills needs to keep in mind. The cost of raw materials for those houses, like lumber, are still going up.

“It’s been huge over the course of the pandemic, it’s massive numbers. It’s lumber packages more than doubling in price,” he said.

“We’ve taken it on the chin, a lot of this increase, on homes that went under contract and then between the time that it went under contract and when we actually ordered lumber, that three month time period you sometimes you had these huge spikes, but we honor our price and we move forward,” he said.

Another factor that homebuilders are contending with is the Federal Reserve’s interest rate increase, which is expected to cool off a hot housing market as mortgage rates follow suit.

“Residential is booming and even without looking at New Mexico data, it’s booming everywhere. It’s booming even greater in locations where people are moving to,” Zarenski said. “So if you’re moving out of New York City and you’re moving to Albuquerque, New Mexico, Albuquerque is a place where growth is expanding. Anywhere where growth is expanding, residential construction is booming and residential inflation is greater than the national average.”

Twilight Homes is preparing for this cooling off by capitalizing on more affordable parts of the housing market.

“Unfortunately it does not reduce the pool of people who need a home, but it reduces their ability to get one, so we started exploring – we’ve got a separate division of our company we’ll be launching in Rio Rancho,” Mills said. “We have a starting price below the median home price in the Albuquerque market to try to offset some of that.”

Regardless of the impact of the rate increase, Mills said there will still be more of a demand for housing than builders can meet.

“We’ve got the largest generation since the boomers are entering prime home buying age and to a certain extent, the housing industry nationally has … known it was coming, but we’ve done nothing to prepare for it,” he said.

Source: ““Trifecta of Problems” for NM Construction Companies“