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Rising wooden costs add $ 36,000 to the price of a brand new dwelling

Posted on April 30, 2021 by

As the real estate market gets leaner, potential buyers are turning to record numbers for new homes, but several factors make these homes more expensive than ever.

First, there has been a major change in the composition of the market due to the record shortage of available homes. Approximately 1 in 4 homes for sale are now newly built, the highest proportion ever. Historically, new homes make up around 1 in 10, but behind that shift is fierce buyer competition. The prices for new and existing houses are at record highs.

But it’s not just competition that is fueling prices for new homes. The cost of what goes into the house increases as the prices of materials and land increase.

According to Random Lengths, a lumber industry tracking company, lumber prices seem to be breaking new records almost every day, now up 67% this year and 340% year over year. And wood doesn’t just frame a house. These additional costs included closets, doors, windows and floors.

Sawn timber prices are rising for a variety of reasons that go beyond the high demand from builders and renovation companies. Sawn timber prices had already risen a year ago, but production stopped when the pandemic broke out. The expectation was that the demand for housing would dry up for a long time. But instead, after a brief pause, it came back roaring. House builders were just as surprised as wood producers.

“It is clear that increasing import costs through tariffs does not improve the situation,” said Robert Dietz, chief economist for the National Association of Home Builders. “We must do everything we can to increase domestic supply, including producing more domestic timber and settling the trade dispute. It is about affordability of housing.”

Last year’s rise in lumber prices increased the price of an average new single-family home by $ 35,872 and the market value of an average new apartment building by $ 12,966, according to NAHB.

Workers install roof trusses on a new home in Arvada, Colorado.

Rick Wilking | Reuters

Some home builders have said they are slowing production amid the exorbitant cost, but according to the U.S. Census, single-family home starts increased 41% year over year in March. The builders are clearly trying to ramp up production as quickly as possible to meet increasing demand.

“We don’t have an offer in the new home or resale market today,” said Sheryl Palmer, CEO of home builder Taylor Morrison, in an interview on CNBC’s Worldwide Exchange.

Palmer said it has seen a surge in demand across all regions and across all market segments, particularly from first-time buyers and over 55 buyers. However, construction costs have gotten out of hand, she said.

“We have seen in the last four or five months that what I have never seen in my career is wood to get to the level it is,” said Palmer. “We’re very excited to get back to full capacity domestically. I think if we can get full supply we can balance the wood a bit.”

But it’s not just wood. The prices of plaster of paris, which is drywall, are up almost 7% year over year.

Product prices for steel mills are at a record high, increasing by almost 18% in March compared to the previous year. It is used for beams, sheet metal products, and wiring.

The copper price also reached a record high this month and has been 27% since the beginning of the year.

And then there is land. The price per single lot has increased by 11% this year compared to the previous year because the demand is so high and the supply is low. According to Zonda, a real estate data and consultancy firm, the supply of new land is down 20% year over year.

Inventory is narrowest in San Diego, Baltimore, and San Francisco. Nashville is also now seeing one of the biggest drops in supply. The number of tickets in 90% of the top markets covered by Zonda is considered to be clearly undersupplied.

“There is literal land grabbing as builders collect land to better match the supply of housing with demand,” said Ali Wolf, chief economist at Zonda. “The shortage of land on offer is real and is causing prices to rise and building owners to move further into the suburbs.”

Wolf adds that the new real estate market is not and will continue to achieve its full potential as long as the land shortage persists. Add higher commodity prices to this equation, and the new home market will continue to struggle should it receive huge rewards from hungry buyers.

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