Construction costs are the highest in 50 years, with contractors and homebuilders feeling the pinch.
That’s something to keep in mind if you’re building a house – or really anything – this year.
Recent data from the US Census Bureau shows that construction costs rose 17.5% year-over-year from 2020 to 2021, the largest year-over-year increase in this data since 1970. .
2021 costs were also more than 23% higher than 2019 before the pandemic.
Companies attribute this to supply chain issues, inflation, labor shortages and other issues that have dominated headlines over the past year.
The price of softwood lumber alone has jumped about 85% in the past three months alone after the U.S. doubled tariffs on Canadian lumber and wildfires disrupted the production of lumber.
Other materials like gypsum and steel are also higher.
These costs are ultimately passed on to potential homeowners building a home or other entities building or expanding any type of structure. Continued demand for homes and the influx of new residents in some states, such as Texas, have also given way to strong price increases.
According to a new report from Realtor.com, the median home price in DFW is now $400,000, up 14% from the same time last year.
Homebuilder confidence is also falling for the first time in four months, according to the National Association of Homebuilders, despite strong sentiment scores at the end of 2021.
“Higher material costs and lack of availability are adding weeks to typical construction times for a single-family home,” NAHB President Chuck Fowke said in a CNBC report. “NAHB analysis indicates that the overall cost of residential building materials has increased nearly 19% since December 2020.”
The situation has also led some companies to stockpile materials to protect against future increases. There are also reports that some homes are being sold while features are still missing or many are reducing feature costs.
That’s why industry experts are warning anyone building anything right now to do what they can to protect themselves from problems with their contractors or other parties.
“I would advise them to be able to track, track, track. Organize, archive, capture and keep everything in one central location. Make sure they are prepared to defend the project because the project is one thing but it is the cycle of life,” said Shelley Armato, CEO of MySmartPlans, which has managed more than $12 billion in construction projects.
MySmartPlans is a technology service that offers all parties involved in a project the ability to maintain accountability and transparency in construction projects. It acts as a third-party custodian of all project data and documents, including plans, specifications, notices, emails, photos, reports and other file types – which has enabled businesses, contractors and builders avoid problems in this volatile age of building.
“A homebuyer who is building a new house, and he contracts for, say, $450,000. And then there’s a provision in the contract that might be in lowercase that they don’t even really realize. So it’s [important to be] much more studious in our purchases at all levels,” Armato said.
She said another issue driving up the cost of projects is litigation and other legal hurdles that arise from material delays and cost-cutting measures that have sprung up due to the pandemic.
“Because now the contractor can point to the supply chain. As the owner, let’s say I ordered this amazing Joanna Gaines kitchen sink. And the contractor says, ‘you know, it’s out of stock for 12 weeks, but I have this other one that we can use.’ And the other one, maybe they bought it at reverse auction for $72 and they’re going to sell it to you for $42,000,” Armato gave as an example.
Despite rising costs and other issues, new homes for sale at all stages have seen a surge, up 58% at the end of 2021 from a year earlier.
The construction work therefore did not stop.
Experts say it’s because of the huge demand for housing and the lack of inventory of existing homes.
Data shows most North Texas counties continue to see the lowest inventory of homes for sale in three decades, with the biggest declines in Dallas County.
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