Why is New Construction So Expensive?

Why is New Construction So Expensive?

If you’re trying to buy a home right now, you may be watching the prices of brand-new homes go up weekly.  Trust me, I’m seeing this too.

But why? Why has the price to build a home increased so drastically over the past year?

Lumber, Lumber, Lumber

Lumber is the highest material cost to build a traditional home.  And the cost of lumber has quadrupled in the past year. You might be interested to see this:

lumber cost 2021

So why has the cost of lumber gone up so much?  At the start of the COVID-19 pandemic, many lumber mills cut capacity, expecting a significant decline in the housing market. That decline never happened. Here in Des Moines, I can tell you we saw a brief pause when everything first shut down in March 2020, but after taking a breath for three weeks, the market went up every month straight.

Supply chains typically need some time to correct, and the amount of time varies by product. Think about the toilet paper shortages in the spring of 2020. Luckily, toilet paper production was able to increase significantly and quickly.  Lumber is still working its way through the process.

Interested in reading more? Check out Vox’s Analysis.

Delays and Shortages of Other Products

In the past 14 months, I’ve heard of delays of these products impacting construction costs:

  • Appliances
  • Roof Shingles
  • Windows
  • Siding

That list of products is just off the top of my head. Talk to any builder, and their list is most likely much longer. I’ve even heard of door jambs being delayed.

Every time a product is delayed, costs go up. Scheduling construction of a home is a science; the materials are expected to show up in time for the appropriate contractors to use those materials. If roof shingles, for example, are not available by the time they’re expected on the schedule, now the builder must reschedule roofing contractors, possibly paying higher prices and/or delaying the build.

Looking for more information on how the potential delays in materials have impacted builders? Here’s a full analysis from the Philadelphia Inquirer.

Are Builders Raising Prices Just Because They Can? Definitely Not.

But do these factors really add 15% more to the price of a house in just a few months?

Yes.

I’ve spoken to several builders and builder representatives in just the past two weeks; builders are trying to navigate costs going up weekly and still stay in business. Builders have taken several paths to navigating this wild ride:

  • Spec homes may see increased prices even during construction.
  • Some builders are not committing to a final price until after specific construction milestones have passed.
  • Some builders are not listing houses at all until after specific construction milestones have passed, so they have a handle on the lumber cost for each specific house.

What this means for you?

If you’re buying a new construction home this year, don’t wait. Prices will only continue to increase, probably through the end of 2021.

If you do buy a new construction home that’s still under construction, make sure to ask whether the builder has the right to increase prices during construction. And, stay a little flexible on the closing date. Delays happen; ask about when the builder will commit to a closing date.

Even while buying new construction, you’ll want to have your own representation. As a REALTOR®, I keep my ear to the ground on a regular basis and hear how each builder is doing. This is not the time to go it alone.

A final word…

Building and buying a brand-new home can be exciting and is a dream for so many people. If that’s your dream, go for it. Just be ready for a wild ride first.

Looking for help? Reach out – the whole team is here. We’d love to help you love where you live.

Till Next Month,

Nora Crosthwaite

Licensed in the state of Iowa

Home Sweet Des Moines – RE/Max Precision