For anyone that’s entertained the option to build your own home, the prices have been climbing substantially over the past several months. CNBC is reporting that lumber prices are adding around $36,000 in lumber costs alone to the build price of an average single family home.
The rapid inflation of building costs isn’t restricted to lumber. Interior finishing materials have increased in price, as have exterior finishing products aside from softwood lumber, adding thousands more to the average cost to build. With historic levels of construction by home builders, labor costs have seen an uptick with competition to lock down a general contractor to watch over site work and material procurement.
Why lumber costs are rising
Some lumber prices have risen by more than 250% in the past year that overlaps with the pandemic, and that’s no coincidence. Mills that supply the American construction industry were forced to cut production and close for a time while COVID-19 raged. The same rings true for suppliers of other materials too including paint, engineered stone, and interior paint. However, builders were typically not forced to slow down or stop. Steady demand and a decrease in supply has caused the accelerating rise in home building costs.
The effect on the housing market
Overall, the cost per square foot to build most types of homes has increased by 15% in the past year, and it’s expected to go up another 8% in 2021. Adding to the lumber shortage is a land grab that finds available building lots in the nation’s urban and suburban areas at a 20-year low.
In a normal economy, existing homes built within the past 20 to 50 years would be more popular in the market for buyers who transition away from new construction due to the sales price. However, the hot housing market doesn’t have the room to give, especially in the most common home sizes with typical square footage and layouts.
The effect is a complete housing market with rising prices. Mortgage sizes are larger and more buyers are taking advantage of long-term fixed rate mortgages in 15-year and 30-year terms. It could be years before the housing market cools off, and it may be a very long time before prices drop to levels from 2020 or earlier.
One area where rising prices make a lot of sense right now? Mortgage refinancing. Due to inflated values, it could be possible for homeowners to refinance and use equity to escape private mortgage insurance costs, or to leverage their equity for renovations or other purchases and investments.
The time to act is now
For anyone looking to make a housing purchase or make a play on refinancing, the time is now. Interest rates are extremely competitive and the squeeze on the housing market nationwide doesn’t show any signs of letting up. It’s a matter of acting now or potentially losing an opportunity.
For investors and self-employed borrowers, MBANC can help get you an approval faster and easier than other lenders. Where you might’ve been rejected before, we can often get you an approval. Contact MBANC to get pre-approved for one of our mortgage products, then find the new home you deserve.