Building Material Prices Driving Housing Appreciation
Since the beginning of 2020, building material costs have skyrocketed and driven up the cost to build new homes and apartments. The increase caused builders to increase new home sale prices. As a result, new home prices were bid higher and this spilled over to higher price bidding on existing homes. What happens when the market stabilizes?
For example, lumber prices more than tripled in a year. Just on lumber prices, builders have quoted costs increasing by $25,000 to more than $35,000 per house. Lack of supply drove the increase. Prices of many other building materials also increased. Once the short term increase abates, look for new home prices to decrease. Builders will certainly try to capture the higher price and increase the profit margin, however, competition will put downward pressure on new home prices.
2020 and early 2021 created more affordability based on two factors – the lowest interest rates in decades and increased savings availability from stimulus and decreased spending by consumers. The current rising interest rates will lower affordability, but look for some offsetting home price moderation to help with affordability.