The new homes’ market has been in high demand but it hasn’t come without a price. New homes’ prices are on the rise and there are a number of factors that dictate cost. Here are a few reasons why buyers must be prepared to pay more for their new home.
Reason #1 – Lots – There is a shortage of lots near metro areas and for the ones that are available they sell at a premium. Builders either have to move further away from the city (which is not always the most attractive option) or they have to build a more expensive home which makes their target market smaller.
Reason #2 – Labor – Finding a good group of skilled construction and trade workers is challenging. Many of them were wiped out during the Great Recession and others are entering retirement. This has caused a shortage of valuable labor and additional cost to hire good ones.
Reason #3 – Lumber – The cost to build a new home is directly tied to the cost of the lot and the cost of the supplies needed to build the home. Lumber costs continue to escalate due to policies restricting the importation of Canadian lumber, making larger luxury homes an attractive option to recoup costs when selling, rather than building smaller single-family homes and making less profit.
Reason #4 – Lending – Tougher lending standards have made it more difficult for builders to borrow money.
Ultimately, the demand in the market has been the largest contributor to rising home prices but for home builders it’s not only about the consumer market. It’s also the added cost of doing business that has caused prices to rise.
Sources: KCM Blog “The Supply & Demand Problem Plaguing New Construction”