Why Are Housing Prices Still So High?

Lumber prices were on the rise throughout most of 2020 and the first half of 2021. In fact, by June 2021, lumber prices were up 288%. At the same time, the price of newly built homes also rose. In May of this year, the median price of a newly built home was up by 18% compared to the same time last year. Lumber prices and home purchase prices are related costs, so these events are not surprising. 

But this story has a twist. Midway through the summer, lumber prices began to drop. In fact, in August, the cost of lumber was down by a staggering 74%. Homebuyers watched for a similar decrease in the price of a newly built home, but that has yet to materialize. Why?

The answer is complicated. To understand the factors driving up the cost of a new home, you must first understand what's happening with the cost of other building materials, like steel, plastic, copper, and asphalt. It's also helpful to know the challenges that contractors are facing in the construction industry.  

Other Material Costs 2020 and 2021

Lumber isn't the only building material that experienced price fluctuations in the last year. In fact, the overall price for residential construction materials is up 19%. Below are the materials that have seen the most dramatic increases:

• Steel
• Asphalt
• Copper pipe and tube
• Building paper and building board 
• Fertilizer
• Plastic piping
• Thermoplastic resins and plastics 
• Laminated veneer lumber 
• Structural metal joists and concrete reinforcing bars

Interesting fact: material prices started to go up in 2020, then that price increase picked up speed in 2021. In the first seven months of 2021, the majority of these products saw steeper price increases than in 2020. For example, steel mill products increased over 80% in 2021, after increasing only 10% in 2020.

Why are material prices going up?

COVID-related production shutdowns. You may remember that COVID-19 caused many factories to shut down in 2020. These shutdowns occurred in the midst of an increased need for these products. An event like a production shutdown during a demand increase can have a ripple effect that lasts for months.  

Kinks in the supply chain. 2020 was a year that saw kinks in the supply chain that went beyond mere factory shutdowns. You might remember the Ever Given, the supply ship that blocked the Suez Canal for nearly a week in March of this year, causing major disruption to the supply chain.

Problems like this can have a long-lasting effect on the availability and production of various goods. Maybe the plastic pipe for your home building project wasn't on a ship that was redirected away from the Suez Canal - but what if the products that make the plastic pipe were? Supply chain problems like this one and others can dramatically impact the prices and availability of certain materials. 

Increased demand. Homeowners built and remodeled homes in record numbers throughout the last year. This factor alone would have led to a price increase, as increased demand and short supply always cause an increase in prices. 

Industry Challenges Have Also Affected Price

Windows, refrigerators, garage doors, heating units, Trex products - all of these products and more are hard to get and take much longer for delivery than they did in the past. As a result, builders are now limited in the number of projects they can finish in a year, which in turn has caused an increase in prices. 

Finally, labor shortages have also had an impact on the cost of building a new home. Nearly half a million containers filled with merchandise are sitting off the coast of California waiting to enter the port to be offloaded. But labor shortages are slowing down this process. Even as President Biden has called for the port to stay open 24/7, they can't find the people to work or the truckers to move the containers. 

Want to Build a New Home? You Can Still Make That Happen

Just because home prices have increased doesn't mean you can't build a beautiful home. Now more than ever, it's important to make an effort to control your costs. By right-sizing the scope of your building project, you can build the home you've always wanted, without breaking the bank. 

Make a budget. Know how much you can afford to spend. Communicate your budget with your builder, so your builder can propose a design that will safely fall within the limits of what you can afford.  

Get pre-approved for a mortgage. Your mortgage lender will assess your financial situation to determine how much you can afford when you get pre-approved for your mortgage. 

Work with a reputable contractor. A reputable contractor should have transparent billing practices and should be upfront about costs. 

Make a list of "must-haves." Tell your builder what your "must-haves" are - then work in the "nice to haves" as you can afford them. 

Read the contract carefully. Your builder should include costs and a billing schedule in your contract, so you'll know how much you can expect to spend, and avoid going over. 

Shop around. Shop around for the right builder, the right plot of land, the right materials, and more. Shopping around helps you make smart buying decisions that make it easier to control costs. 

Choose a builder that does quality work. A good builder will do the job right the first time, which can help you avoid costs associated with repairs later on. Although quality construction isn't cheap, it's less expensive than tearing down poor-quality work, repairing damage, and rebuilding later. 

Avoid making changes midway through the process. Don't make changes to your home design unless you can't help it. Changes made during the construction process often cost more than if you had just designed your house that way, to begin with. If you do make changes, find out the new price before signing off on the change. 

Work With a Reputable Home Builder In Verona, WI

There's nothing more rewarding than building your own custom home. Don't let high prices deter you from one of life's most rewarding building projects. Working with the right home builder, you can construct an affordable house that you'll love. To find out more about the cost of building a custom home in Verona, WI contact Sugar Creek Homes.