Residential constructions costs have been rising throughout the pandemic. Here's what homebuyers should know about the cost of new homes.
For many homebuyers, finding newly built homes for sale isn’t an issue. But finding a new home that’s affordable is becoming harder to do.
New homes make up a record 34% of the US housing supply but are more expensive than ever as lot, labor, and material shortages continue to hamper homebuilders.
What’s going on with new home prices?
In January, construction spending on new single-family homes increased 1.2% to a near-record annual rate of $445 billion according to the US Census Bureau. Despite the increased spending, the annual rate of single-family home completions fell by 7.3% to a rate of 927,000 homes per year.
In January, lumber prices reached a seven-month high of $1,287 per 1,000 board feet, adding substantial costs to home building. The rate of completions fell to a seven-month low as winter storms delayed construction throughout the US.
What does that mean? It means it took on average $480,000 to build a single-family home in January.
That’s $40,000 more than the previous month and nearly $100,000 more than the same period in the previous year.
Despite these headwinds, homebuilders remain confident that new homes sales will remain steady in the next six months, according to the National Association of Home Builders (NAHB) Housing Market Index.
What homebuilding costs mean for homebuyers
For homebuyers, it simply means higher prices for newly built homes. With demand far outpacing supply, buyers have been lining up for new homes regardless of the extra time and money they require. This assurance has allowed homebuilders to ramp up their efforts despite facing shortages in lots, labor, and materials.
This persistence should result in a higher rate of single-family completions as winter fades and more existing-home inventory comes online. This influx of supply coupled with higher mortgage rates softening demand may help to balance the market and slow price growth from the near-20% annual rate reported by CoreLogic in January.
However, the X-factor for new home prices is material shortages – such as lumber, steel, and concrete – which have consistently increased construction costs throughout the pandemic.
In terms of new home prices, homebuyers should prepare for the worst and hope for the best.