Unprecedented demand for new homes means higher costs, and longer build times, but it won’t last forever
Over the last 14 months, the housing industry has been dramatically impacted by pandemic-related events. While housing has been a bright spot in the nation’s economy, we are now facing unique challenges that are driving up the cost of materials and extending building timelines. Because these changes ultimately impact homebuyers, we wanted to share exactly what is happening in housing and related markets, what that means for building a new home today, and when there may be some relief.
Supply and Demand
The root cause of all the current challenges is a textbook case of supply and demand. An unprecedented combination of factors — including record low interest rates, newly remote employees who can choose where they want to live, parents homeschooling children and needing more space, and the general desire for people to change their living situations during the pandemic — led to a surge in demand for new housing and home renovations. Right now, there is not enough supply of materials and tradesmen to keep up with demand, which has led to increased costs and extended build times.
The rising cost of lumber has been the most news-worthy event in the housing industry. About 80% of the lumber used in U.S. home construction is imported from Canada. Many lumber mills, both in Canada and the U.S., were forced to shut down in 2020 due to health concerns. High demand and low supply drove costs up exponentially. According to Random Lengths, lumber prices have risen 250% from a year ago and continue to climb. Today, there simply isn’t enough lumber to meet demand, or the cost is prohibitive for builders, and timelines for new homes are being pushed out longer than usual.
Another critical building component to face severe shortage is resin. This plastic is used in materials throughout the home construction process — including as a bond to strengthen wood and flooring materials, and in paints, coatings, primers, and sealers. It is estimated that 1.7 metric tons of resin goes into every new home. Much of the U.S. production of resin comes from Dallas, which was severely impacted by the 2020 winter storm. As a result, production slowed or stalled while demand continued to rise, resulting in price increases and building delays.
These are only a few examples. Product delays and suspensions are affecting everything from concrete and sheetrock to cabinets, appliances, and paint. Nearly every line item in a home’s budget is under some type of delay or substitution.
Higher demand for housing has also led to labor shortages. Bidding wars for various trades ranging from framers to excavators to drywallers has caused labor costs to increase drastically. That cost is inevitably passed on to homebuyers, because builders can only do so much to mitigate price increases from trades. In today’s market, it is far better to pay more for a trade partner than to have him or her leave for another builder that is willing to pay higher prices.
The Impact on New Homes and Homebuyers
The pandemic forced the shutdown of construction in some states, causing massive delays and backlogs. Builders in states and municipalities that weren’t subject to shutdowns still encountered significant delays due to cities and counties having less staff to process building permits and applications. Most permits still take two to three times longer to process than they did in the pre-COVID marketplace. This has added weeks, if not months, to building timelines.
The National Association of Home Builders (NAHB) has estimated that, based on a $350,000 home, the cost of lumber alone has increased by $36,000. That increase doesn’t include any of the other increased costs from suppliers and trades. Experts predict that some markets in the U.S. will see home prices for new construction increase over 30% in 2021.
To keep new construction homes on schedule, on-the-spot decisions must be made when builders are notified that a product is no longer available. Builders are doing their best to inform buyers of changes in specs as soon as possible, but due to the increasing unpredictability in supply chains, they may not be able to guarantee products by name or provide specific colors of product. In some cases, they will not be able to provide the product at all. Product substitutions often lead to further building delays.
As some program-mandated products become unavailable, it may be difficult to obtain ecoSelect, Energy Star or National Green Building Standard certifications. This is not due to the quality or performance of the home — builders may just need to use different products than those specified by these particular programs.
Rather than face the uncertainty of supply costs and product availability, some builders are pausing sales until they can provide buyers with a definite cost and/or build time. Many builders have turned to wait lists or lotteries to manage interest.
NAHB is taking steps to mitigate the lumber shortage by urging Congress to work with domestic mills to increase production and end tariffs on Canadian lumber shipments into the U.S. These measures would help ease the threat of lumber scarcity. Building could resume again, bringing along with it positive economic impacts like job creation and tax generation.
Though costs have increased, with interest rates still so low, it continues to be a great time to commit to building a new home. We recommend taking these three steps so that you are prepared and ready to act when you find the one:
- Understand price increases – so that you are educated on the reason your new home costs what it does, and you are prepared and comfortable with making a deposit.
- Get pre-approved– so that you can act fast when the home you want becomes available.
- Join interest lists – so that you are the first to be notified when communities release more lots for sale.
At Tresidio Homes, our team is doing everything we can to minimize the impact of these challenges on our homebuyers, so that we can continue building homes of unmatched quality and design at a pace the market demands. If you are considering making a move to the Boise area now or in the future, we’d love to be your building partner. For more information on available and coming-soon homes, please contact us at 208-917-7500.