‘Our prices have skyrocketed.’ Costs of building a new home soaring, but so are sales

‘Our prices have skyrocketed.’ Costs of building a new home soaring, but so are sales

Cathy Counti’s company is selling houses faster than they can be built.

“Anything that we even start to get a foundation in is immediately sold,” said Counti, president of Ask Cathy Marketing Group, a Lee’s Summit real estate company.

The red hot market for existing homes has been well documented, with houses selling above asking price almost as soon as they hit the market. But the demand for new homes has soared, too, despite significantly higher prices caused by widespread material shortages.

In May, a newly constructed home in Kansas City cost, on average, $486,770, according to data from the Kansas City Regional Association of Realtors. That’s a 21% increase from last year’s prices.

Yet, 2,042 permits were issued for new houses in the metropolitan area between January and April this year, according to data on residential building permits from the Kansas City Home Builders Association. In 2020, that number was 1,702, and in 2019, it was 1,242.

New builds offer certain advantages over existing homes. There’s comfort in knowing everything in the house is brand new. Buyers can customize new houses to their exact tastes, often down to details like outlet placements — a plus after a year of quarantining and working from home caused people to reconsider their surroundings.

And even though new homes are selling fast, there tends to be less competition to buy than in the existing home market.

“People really realized the importance of home and put a lot of focus on it, whether it be remodeling or new homes,” said Andy Homoly, owner of Homoly Signature Homes.

Behind the increased prices

Nationwide, the average price of a single-family home increased by $35,872 between April 2020 and April 2021, according to the most recent statistics from the National Association of Home Builders.

Behind this increase is the material behind the walls: lumber. Lumber is the “single largest line item on a new home built, outside of the land on which the home is going to sit,” said Will Ruder, KCHBA executive vice president.

While sawmills and other producers closed last year because of the pandemic, people stuck at home embarked on renovation projects. The dissonance caused a spike in lumber prices, from $350 to $500 per 1,000 feet of board, to over $1,500 per 1,000 feet at its peak in May.

Too high for builders to eat the costs, these increases are felt by the people buying.

“Our prices have skyrocketed,” said Carolyn Miller, sales manager at Classic Buildings. “Obviously, we can’t stay in business without passing that price onto customers.”

The fact that these prices are ever-changing has caused issues, too. Counti had a client come to her looking to buy an existing house after a builder on a new home couldn’t lock down a price.

“He wasn’t sure how much the wood would cost because the prices were going up so quickly,” Counti said.

The cost of lumber has since begun to decrease, reaching around $1,210 per 1,000 feet in June, but retail prices may never go back to what they once were.

“We’ve probably got a new level of pricing moving forward,” said Troy Beeler, salesman at Treeline Forest Products. “The days of building a house for $100 a square foot are gone. Long, long gone.”

While its increases have been the most dramatic, lumber isn’t the only industry affected. John Amor, general manager at Great American Building Materials, said he saw costs increase anywhere from 5% to 20%, depending on the product. Siding and windows got the worst of it, while smaller odds and ends remained close to unchanged.

On top of that, shortages mean products are taking longer to get. Houses that would have been built in six months before are taking closer to nine months, Counti said.

“The joy of it is that they get to pick out their own home and they don’t have to compete as much for that home,” Counti said. “The struggle is that it’s taking longer than what they had hoped to get into that house.”

Still, people keep buying.

“It seems like it just keeps going,” Amor said. “Growth just keeps happening, even though this is going on.”

Continuing demand

Most people having taken the price increases in stride. Daniel Edwards, co-owner of Albert Tamm Lumber Company, likened customers’ reactions to being told they need to do chores.

“Like, you get pissed off, you huff, and you puff,” he said. “I have a 5-year-old and a 3-year-old, and it’s like, ‘Go clean your playroom up,’ and they get pissed, but they have to do it. That’s been kind of the reaction.”

Not everyone can foot the higher costs, though. The surge has priced out millions of families who would have qualified for a mortgage on a median-priced home before the increase but not after, according to the NAHB. Edwards has had customers who have more trouble affording the projects and renovations they want because of the increases.

“It’s just hurting the mom and pop who just want to go fix their deck, or they just want to go do something around the house,” Edwards said.

For the people working on smaller projects, Edwards suggested waiting until the market evens out. Although prices will likely remain above the previous average, they won’t stay sky-high forever.

“We do tell people, ‘Hey, if you could hold off a few weeks, the prices are coming down right now,’” Edwards said. “It’s just a decision that you have to make.”

However, the market can be unpredictable. Taking into account labor shortages, increasing interest rates and fluctuating supply and demand, for those who can afford it, starting to build now might be the better option, said Chris Ragland, owner of Homes by Chris.

“If people are waiting to build a home because they think the price is going to come down, I don’t agree with that,” Ragland said. “There are too many other factors in play that are continuing to cause the price of homes to be built to go up.”

Starting now seems to be the more popular option, with demand expected to remain high for the rest of this year and even potentially into next year and beyond — for existing houses and new construction. Counti has yet to see the market slow down.

“People are buying. People want to buy,” Counti said. “They want to own a home, and it’s not deterring them that they know they’re going to have to compete and pay a pretty penny. Not deterring them at all, in any way, shape or form.”

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