As the housing market tightens, potential buyers are flocking to new construction in record numbers, but several factors are making those homes much more expensive than ever before.
The first is a significant shift in the market’s composition because of the scarcity of existing properties. About one out of every four homes for sale is now brand new, the highest proportion ever.
Historically, around one out of every ten homes has been new, but that is changing due to severe buyer competition. New and existing housing prices are at all-time highs.
But it isn’t simply competition that is driving up the cost of new homes. As material and land prices rise, the cost of what goes into a home will rise as well.
According to the National Association of Home Builders, rising lumber prices have added nearly $36,000 to the average price of a new single-family home.
“Unfortunately, those prices do get passed down to the consumer and there’s not really any way you can spread that out through the rest of the industry,” said Rebekah DeLaMare with the Home Builders Association of Southwest Colorado.
She estimates the surge in prices will likely last through the year and suggests considering alternative building materials that may be more affordable.
According to Random Lengths, a wood products industry tracking business, lumber prices are up 67% this year and 340% from a year ago, setting new records practically every day. And lumber is used for more than just building a house. Cabinets, doors, windows, and flooring are all affected by the increased price.
Beyond the increased demand from homebuilders and remodelers, lumber costs are soaring for a variety of reasons. Lumber tariffs had already begun to raise prices a year ago, but manufacturing was halted when the pandemic struck. Housing demand was expected to dry up for an extended period. Instead, it came roaring back after a brief pause. Homebuilders were caught off guard, as were lumber producers.
“Clearly, increasing the cost of imports via tariffs does not help the situation,” said Robert Dietz, chief economist for the National Association of Home Builders. “We need to do everything that we can to increase domestic supply, including producing more domestic lumber, as well as resolving the trade dispute. It is matter of housing affordability.”
The surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home, according to the NAHB.
Although some builders have stated that they are delaying production due to high prices, the U.S. Census Bureau reports that single-family housing starts were up 41% year over year in March. Builders are attempting to increase output as quickly as possible to satisfy growing demand.
“We just have no supply in either the new home or resale market today,” Sheryl Palmer, CEO of homebuilder Taylor Morrison, said in an interview on CNBC’s “Worldwide Exchange.”
Builder costs are out of control according to Palmer. She also noted that demand has increased across all geographies and market groups, notably among first-time buyers and those aged 55 and up.