USA: Surging construction costs to build a new home is not sustainable and is becoming a pain in the arse for homebuilders and prospective homebuyers. From concrete to lumber to copper pipes to paint and even appliances, costs have surged over the past year.
The housing boom sparked by the Federal Reserve during the virus pandemic was built on historically low mortgage rates (thanks to Powell) and accelerated by a combination of record-low inventory as city-dwellers moved to rural areas amid the remote-work phenomenon.
According to Zillow Group Inc, the past year has been the hottest real estate market since 2007. Economist Robert Shiller, the co-founder of the S&P CoreLogic Case-Shiller home price index, recently told CNBC that “in real terms, home prices have never been so high. My data goes back over 100 years, so this is something.”
Making matters worse is a shortage of materials as there is just too much demand from builders and not enough supplies due to supply chain disruptions. There’s also the issue of not enough buildable land. All of this has manifested into dangerous inflationary pressures vibrating not just through the housing market but the entire economy that may force Federal Reserve to announce tapering at Jackson Hole. It wouldn’t be surprising if MBS purchases from the Fed would be some of the first to be reduced.
Bloomberg provides an example of surging housing costs in one of the hottest housing markets in the country: Boise, Idaho.
Steve Martinez, the operator of Tradewinds General Contracting Inc., said his company had to raise costs on some of its new builds to offset high raw material and labor costs.
Martinez said the sale price of a 3,000 sqft, which excludes the lot but includes costs, labor, and profit, was $746,671 this spring. He said that’s 58% higher than two years ago in 2019. These costs are primarily the reason why home prices are surging.
Foundation costs for the builder jumped 104% since 2019.
Lumber costs are one of the most significant issues for the builder. Prices have nearly surged 262% since 2019.
Timber roof trusses to frame a structure to support the roof have more than doubled since pre-pandemic levels.
by Tyler Durden