Building Materials Prices Continue Record Pace
Construction costs and building materials prices continue to rise at a record pace year over year. The cost of construction and building materials has increased 19.4% over the past 12 months and 13% year to date, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. (NAHB)
Biggest Gains:
Steel: Steel mill products prices climbed 10.8% in July following a 6.2% increase in June. The pace of increases has accelerated each of the last two months, and prices have climbed 108.6% over the past 12 months and 87.6% in 2021 alone. (NAHB)
Lumber: Price volatility as measured monthly by the PPI or weekly by industry publications remains at an all-time high for a 12-month period, though prices have cooled in the month of July. Most notably, OSB (oriented strand board) has increased 510% since January 2020, exceeding the peak price increase in lumber by nearly 180 percentage points. (NAHB). Lumber has pushed up the average cost of a new home up 36,000. (CNBC)
Gypsum products (drywall) increased 2.5% in July and are up 15.8% year to date. Over the past 12 months, the index has climbed 21.7% — the largest 12-month increase since July 2006.
Copper: Used in wiring copper is up almost 50% year over year.
What does this mean for the average Joe Homebuyer?
The rising cost of building materials harms housing affordability. High prices and limited supplies of lumber, steel, drywall and other imported materials and equipment increase volatility and drive up housing costs. That means Joe Homebuyer will pay more for a new construction home and spend more for renovations and updates to an older home.
High prices and scarce supply also mean that many builders are limiting new home starts and delaying construction timeframes. That means fewer new homes are coming on the market to meet the current demand.
As materials costs continue to rise rapidly, many builders are decreasing the amenities and features included in a new home. That means Joe Homebuyer is paying more for a home with fewer included features.
Appraisals cannot keep up with or reflect the true value of homes as prices are outpacing those paid for comparable homes. A low appraisal leaves the burden of bridging the gap between the appraised value and the sales price on the prospective homebuyer.
Conclusion:
Higher commodity prices, lack of inventory, labor shortages, increasing land prices, and high demand are leaving many would-be buyers behind. Affordable homes, both new and resale, are nearly impossible to find. The upside? Mortgage rates remain at historic lows which will help offset some of the new construction or renovation costs. And some banks offer low-interest home equity lines of credit for renovating an older home which can help with out-of-pocket expenses for pricey renovations.
The best advice for this unprecedented market is to stay within your budget, consider time to build equity, and use an experienced agent that can guide you through homebuying hurdles. Lastly, choose a lender that can help with product offerings that meet monthly and long-term goals.
For more reading check out our sources below:
Material Costs Affect Housing Affordability