Building Material Prices and Rising Housing Costs Explained
What do hobby woodworkers, realtors, construction professionals, and home buyers all have in common? They are highly aware that prices of building materials have spiked historically in the past year, and the housing market responded.
Raw building materials such as lumber, plywood, concrete, and rebar have all rose in price dramatically, some by 400%, since this time last year. This is due to changes in supply and demand that have rapidly fluctuated due to a number of factors, but mainly as a result of the COVID-19 pandemic.
Dave Henderer, owner of Henderer Design & Build in Corvallis, said business has been booming. “We’re busier than we’ve ever been in 27 years,” he said, “people are determined, and figure there’s one place to put their money that’s safe – into their home.”
Henderer added that while demand for their services is up, one thing that has changed is reliability of receiving the materials they need.
“We used to guarantee a schedule, but that’s hard right now,” he said, referring to the unpredictable and extended amount of time it takes for his company to get the wire, concrete, and other building supplies it needs to complete home renovations.
The Problem Nationwide
An article published by CNN Business investigated why many common goods have risen steeply in price, and identified root causes like a shortage in shipping containers and congestion in shipping ports which has affected all marketed goods, as well as shortages in truck driving labor. These scarcities mean a decrease in the amount of materials we see delivered to the U.S. and then distributed to stores.
Economics and industry experts also believe that short-term changes in supply and demand have influenced the price of housing material. In the first six to eight months of the pandemic, many people were staying home, saving money, and collecting stimulus payments. That means people picked up new hobbies and flocked to home improvement stores to purchase materials for improvement projects. In the fall of 2020, home construction also ramped up, putting additional demand strains on products. In the winter, interest rates on mortgages hit surprisingly low levels, increasing interest in home buying.
That means while interest in home ownership was at one of the highest points in a decade, the housing construction business was running out of materials to add new homes to the market. Add to this the current labor shortages in many related markets, including lumber mills, manufacturing plants, and other “blue collar” positions, as well as industry-wide work shutdowns related to the pandemic and boom – high demand and low supply.
The Housing Industry
According to monitoring of house prices by the National Association of Home Builders (NAHB), the average cost of a pre-existing home in the U.S. rose over $40,000 since the start of 2020. The average cost of brand-new homes in the U.S. rose over $20,000.
Unfortunately, the cost of building supplies as well as the high-demand state of the housing market are not predicted to decrease significantly in the next year. The NAHB expects federal interest rates of home loans to stay low next year, but rise in 2023, which may deter some buyers from purchasing.
This means the market may neutralize in two years, however over the next year to year and a half, the market is anticipated to remain a strong sellers’ space.
Similarly, it is predicted that due to a back-up of demand for building products, even as those start to be produced at normal rates as factories and shipping returns to normal post-pandemic, supply will remain low for an extended time. Building materials are not expected to decrease in price for the rest of 2021.
Bottom line – if you are looking to purchase a home in the next year, plan to pay more than you might have in 2019. Also, expect to be a player in a bidding war, as many families are needing to pay well over the asking price to gain home ownership.
Some experts are cautioning young buyers or those considering purchasing their first home to wait. And it looks like if you are choosing to wait, waiting until 2023 will make all that patience worth it.