Soaring Material Costs and Labor Shortages
Demand for housing is up. Interest rates are near rock bottom. Building materials are scarce with prices soaring. Skilled labor is hard to come by. And, land is priced at a premium.
While COVID-19 has brought much of our normal life to a standstill, the demand for housing is anything but stagnant. Quite the contrary, in fact.
COVID-19 has been the catalyst for many families to bring loved ones home as care center living poses visitation and wellness challenges like never before.
At the same time, work-from-home and virtual learning has driven intensified and immediate needs for privacy, space, and enhanced technology and connectivity. Stay-at-home orders have caused a desire for change, amplifying dissatisfaction with current living arrangements.
Orders to restrict travel and social engagements have allowed some to amass savings which are being directed, in many cases, to either home improvements or new home construction.
Combine all of this with all-time low mortgage rates and the ease of virtual home buying and the result is a record-setting backlogs for local home builders.
Demand of this magnitude has not been seen before. Neither has the extraordinary challenge of procuring the skilled labor and building materials to keep up with consumer demand.
Builders nationwide are faced with material shortages due to the COVID pandemic. Around the globe, production has slowed and delivery challenged. New home builders find themselves confronted difficulty acquiring windows and window screens, interior and exterior doors, appliances, vinyl siding, HVAC equipment, cabinets, front porch columns, shutters, shingles, and much more.
Aside from scarcity, material prices are soaring. Lumber and steel are two of the most extreme examples. Check out the lumber price graphic below.
What this chart shows is the cost of 1000 board feet of rough cut pine or soft lumber. For example, 7/16” OSB, as of 2-12, was $835 per thousand square feet whereas a year ago, it was at $255 – more than triple the cost and a major component in building a new home.
Price increases attributed to rising lumber costs alone is adding between $13,000 and $25,000 to the price of building a new home this year versus last year. Add to that additional premiums in the rising price of steel. Steel prices continue to climb due to rising demand and short supply. Lockdowns in China’s leading steel producing regions are partly to blame for rising steel costs.
Aside from material challenges, builders nationwide are also facing serious skilled labor shortages. Experienced skilled trades are retiring and young people are not filling the vacancies. The pain is felt across all areas of specialization from plumbers and electricians, to sheet metal workers and carpenters. Framers are in particularly high demand locally.
Lastly, the price of land is also driving up the price of new home construction. Long gone are the days of bank-owned properties auctioned at a fraction of the value. Today, land is a premium and changes in housing policy are driving development costs to rise alongside soaring acquisition prices.
Together, Land, Labor, and Lumber are sore spots in new home construction. The bright spots are Lending and Lifestyle. While mortgage lending rates remain low and the desire to build a better way of life persists, new home building will forge ahead. Buyers beware: build times are extended as production struggles to overcome lags in material and labor. So be patient. Your new home will most certainly be worth the wait.