Why Do New Construction Home Prices Keep Rising?

Posted on January 26, 2022 in LIVING IN NC,NEWS

What is the reason for home price increases in Raleigh NC for new home construction homes?

Every home builder in the country is getting this question because it’s a nationwide issue. It began in early 2020. The pandemic closed businesses, organizations, and schools, sending people home, including workers across all industries. This shutdown then sparked a series of unexpected actions that combined to create a perfect storm, and everyone started searching for new construction homes near me!

“I don’t love my home any more.”

Your home was always a haven, but you weren’t spending as much time there until the pandemic. This shift in lifestyle triggered anxiety as people tried to adjust their lives to accommodate the sudden restrictions.

Between establishing a productive home office, classroom for the kids, home fitness area, and storage for all the supplies you stocked up on, the space felt more cramped than ever. Homeowners fell out of love with their homes at a record pace.

“These mortgage rates are too good to resist.”

While the desire for buying a new home was surging, the interest rates hit record lows. The temptation turned the spark to shop into a raging fire to buy a new home.

“I can work from anywhere.”

Working from home (WFH) became an option for employers and their workforces. With a good internet connection, mobility, and all the available tech tools (e.g., Zoom, Slack, FaceTime), people could collaborate without sharing a space.

With WFH, homebuyers discovered they had more options for where they could choose to live. City dwellers frequently left the urban life behind and escaped to more affordable, less crowded areas.

So, America was (and still is) in the throes of a sizzling hot housing market. Homebuilders, Realtors, and sellers had demand that no one could have predicted and new construction homes saw more demand than there was supply.

And then…

Demand exceeded supply.

In many states, residential construction was among the non-essential businesses. So, while buyers were hungrily looking for homes, the inventory was rapidly depleting. Todays inventory levelsare currently at the lowest in history. The extreme demand also added one more challenge for homebuyers: The actual selling price often exceeded the asking price…by A LOT!

New construction homes presented a healthier home solution.

The pandemic prompted more caution among homebuyers while also putting “healthy home” at the top of their wish list. New construction seemed preferable because it utilized the latest technology for both energy efficiency and indoor air quality. Buying a new construction home also meant there was nothing lingering in the air, the walls, and on the surfaces—a critical consideration for our virus-centric mindset.

Getting back to building new homes near me wasn’t easy.

Homebuilders got back to work around the middle of 2020 (depending on the state’s official determination of “essential business”). Unfortunately, the demand for new homes whittled away their inventory and the halt in construction put them behind on their projections for new homes to be completed.

So, the work was there. The workers weren’t.

It’s not as easy as re-opening your doors and pushing a button to restart production. Among the people who were sheltering at home during the pandemic shutdown were factory workers. Manufacturers of building products—like lumber, windows, plumbing, concrete, paint, siding, hardware, and electrical components—were out of work until their business was deemed essential.

When these companies were able to restart production, they lacked the labor to get back to full force. Some workers who had been furloughed had found other jobs during the interim. Others decided it was more fruitful to stay home and accept the government benefits than return to work.

Production delays added to the shortage.

As if the pandemic hadn’t wreaked enough havoc, Mother Nature struck hard in 2021. Texas was hit with a winter storm that caused manufacturing plants to shut down yet again. A hub for the production of petrochemicals, the disruption led to shortages in paint and cement, products that rely on that output. The storm set cement production back by nearly half a million tons!

The delays in production flowed through the supply chain to the builders. Items like windows and appliances went from a manageable turnaround time to a wait of six months or more. Construction managers had to juggle crews to align with the delivery of the materials, a task that grew more and more difficult as time went on.

New Construction Home Building costs surged.

From June 2020, the cost of building materials soared. By April 2021, the price of lumber jumped 180% over a one-year period. It’s estimated that the dramatically increased price of lumber adds nearly $36,000 to the cost of building an average single-family home in the United States.

And it’s not just the lumber that went up. In the first year of the pandemic, the price of copper jumped 44% and steel mill products rose 40%. Millwork and plastic construction products saw double-digit and TRIPLE-digit increases, too. Just about every product associated with home construction rose in price in 2021. The production delays for paint and cement pushed those products’ prices up as well.

What’s ahead for 2022?

We’ve weathered two years of tough times, a testament to ingenuity, agility, and resilience. All of these challenges have driven us to work smarter. People are settling into this pandemic-guided way of life—working from home, social distancing, and shopping online, even for a new home. Construction has been ongoing for more than a year, but because of such low supply, any home that goes on the market is instantly gobbled up. Production plants that manufacture materials that make things like windows, paint, plastics, either still can’t get caught up on backlogged orders and stay ahead of demand. Constant plant closures due to COVID outbreaks will stifle any progress as workers have to isolate at home per the CDC guidelines.

Experts are predicting that Raleigh will be one of the top metros across the country leading the charge in the housing market. That means more aggressive price appreciation as more jobs continue to flood into the Triangle Region. As more and more large tech companies relocate their workforce into the Raleigh RTP region, growth will continue. The workers moving here are coming from much higher priced cities, so even with our steep price appreciation, they are still saving TONS of money.

What all that means for home shoppers in the Raleigh Metro area is, today is the best time to buy. As price appreciation continues upward, people who are able to find what they want now, will continue to see nice appreciation on their homes for the months and years to come.

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