19 Jan 4 Reasons for the Rising Cost of New Construction
4 Reasons for the Rising Cost of New Construction Homes!
New Construction Home Prices are Rising in Lakeville and Farmington! Acutally New Construction home prices are rising in Savage, Prior Lake, Elko New Market and nearly all other areas too.
Why are the prices going up so quickly? I’d like to share with you the main 4 reasons for the rising cost of new construction homes, as I see it in my local area. Essentially, the prices are rising because the costs of building those homes are rising and builders pass on the higher costs to build by increasing their prices. That’s normal business procedures and understandable. So what’s behind the rising costs?
Rising Cost of Land: The lot prices in Farmington and Lakeville in 2010 hit rock bottom and you could scoop up a really nice lot for $40-$50K. Those same lots today are on the market for $85-$90K . In addition, the developed lots are almost all sold off and there hasn’t been much development of raw land in the area. It can take 6 months or more to purchase land from a farmer, obtain the necessary permits and plan approvals, lay out designs, dig in utilities including gas, electric, phone, cable, water and sewer lines and create the streets. All of that work needs to be done before the builder puts their hands on the lot and sells it to a buyer!
There is a well written article by Shaila Dewan, Prices are Rising for New Homes and the Land They are Built On, published last fall in the NY Times.
Rising Cost of Labor: The cost of services from sub-contractors has continuously increased over the past two years. The cost to a builder for large scale services such as the Plumbing, Electrical or HVAC systems installed and warranted by a subcontractor have seen at least a 20% increase in the past two years. Back in 2010, there were so many trades people with little or no work, they charged as little as possible in their bids, trying to ensure they got the work. Now, with more demand for their labor, they have returned to higher price points for the same jobs.
Rising Cost of Materials: Lumber, Insulation and Gypsum Drywall are three of the materials which rose significantly in cost during 2013, adding to the overall cost of building a new home. In addition, fuel prices were high during 2013 especially early in the year and led to added charges for shipping. The ACG of America provided the following information on their website. ”
“The producer price index for all construction inputs – what contractors pay for construction materials – leaped 1.3 percent between January and February, equaling the entire increase for 2012, Simonson noted. The index was 2.0 percent higher than in February 2012, outpacing the increase in the price contractors are able to charge for most types of new buildings. The index for new office construction rose only 1.0 percent in the past year; new school buildings 1.2 percent; new industrial construction, 1.3 percent; and new warehouses, 2.6 percent.
The producer price index for gypsum products such as wallboard and plaster climbed 4.4 percent in February, following an 11.8 percent leap in January, for a cumulative rise of 17.8 percent over the past 12 months, Simonson noted. Lumber and plywood prices rose 2.3 percent in February and 15.8 percent from a year ago. Insulation prices increased 2.1 percent and 5.9 percent, while the price index for diesel fuel shot up 7.2 percent for the month and 3.8 percent year-over-year.”
Low Level of Resale Home Inventory: The overall Low Inventory of Homes for Sale in the resale market means buyers are turning to New Construction when they really need a home. The increased demand for housing allows builders to be more aggressive on the pricing, especially for models that are already constructed and ready for quick move-in dates. It’s the Simple Supply and Demand curve in action again!
Call or Text me if you have any specific questions about this topic, you can reach me at 612-889-6496 or by email at [email protected]