Raw material costs have risen dramatically over the past year.
Everything costs more these days, and the price of a new home is no exception.
The national average cost of a new house plateaued at around $389,400 between 2017 and 2019, and ticked up just a bit in 2020, according to Statista. Then in August of last year, it spiked up dramatically to $443,200 and has more or less stayed there since. Of course, prices will vary by region and the level of customization people want.
Housing prices, both new construction and existing units have been on a tear since the pandemic. There are, however, some small signs that prices for new homes have sort of started to level off.
The price of a pre-existing home is set to have its slowest growth in almost a decade this year, staying put at around 2.9%, according to “Fortune.” This is all relative, of course, as the increase in prices might be slowing down, but home prices are still rather high overall, as the median home price has risen roughly 30% over the past decade, according to CNBC.
The reasons for this are that inventory is starting to catch up with demand, and while fixed mortgage rates hit historical lows during the pandemic, they’re expected to rise again if the Federal Reserve, as is widely speculated, raises the national interest rate to fight inflation, which “would put downward pressure on price growth as it raises the cost to buy and locks some buyers out altogether,” CNBC explained.
Image source: TheStreet.
Why Are New Houses So Expensive?
So if the housing market isn’t lifting all tides, as it were, then what gives?
Well, even as demand is starting to fall, the cost of building a new house is rising due to the rising cost of construction materials, which overall jumped nearly 20% last year, according to the Associated General Contractors of America, as reported by Supply Chain Dive.
The cost of materials is rising because of the ongoing supply chain issues that are affecting every industry, though the construction sector is getting hit especially hard. For a more detailed breakdown, here are some of the findings from the Associated General Contractors and the Supply Chain Dive.
The Producer Price Index for steel mill products rose 127.2% over the last 12 months.The index price for plastic construction products rose 34% over the past 12 months.The index for lumber and plywood rose 12.7% and 17.6%.
The Construction Industry Faces Challenges
Another issue not mentioned in the AGC report that seems relevant is that even though “74% of surveyed firms planned to hire in 2022,” we’re still in the middle of a COVID labor shortage, as record numbers of Americans are quitting their jobs in search of better wages and working conditions, or out of fear of contracting COVID, childcare concerns or a general sense of pandemic burnout.
Because of the lack of skilled, interested workers, the construction industry needs a “staggering 2.2 million more workers,” in the next three years, or 61,000 new workers per month, to keep up with demands, according to Business Insider. The competition for workers will also lead to price increases, as well as costly delays in construction.
Due to the rising costs of material and labor, and the Biden’s administrations’ plans to double tariffs on softwood lumber coming in from Canada in order to keep American wood competitive, the construction market is facing a unique series of challenges that the AGC to concludes are “threatening to set back a strong picture of economic growth and recovery for the construction industry and damage its outlook in 2022.”
