New Home Prices Being Driven By Material Costs

Prices of construction materials have been rising because of demand from overseas and higher energy prices, and builders are passing these higher costs on to the consumer.

Higher material costs mean higher home prices, higher rents on commercial projects, and changes to projects based on the material costs and availability.

In December, steel prices were up 4.2% from the previous year, plastics were up 20.6%, cement was up 12.3% and gypsum wallboard was up 15.3%. The run up in construction costs is tied to higher crude oil prices, which make the delivery of goods more expensive, and, since oil is used to make plastic pipe and vinyl siding, those material costs have also risen.

Steel and concrete have risen among shortages created by strong demand from overseas, especially China. "We see it in lumber, concrete, insulation, drywall and vinyl," said Jason DeBoer of DeBoer & Gabriel Builders. "Every week we see memos (from suppliers) of price increases of 5% to 10%." More...

Our own custom home builder, Peak One Builders, is feeling the crunch as well. The costs of building a new home have forced them to increase their prices for a finished custom home. Which in turn, is raising the re-sale prices in the areas that they build new homes. For instance, in Rio Verde where they build most of their custom homes, prices have shot up from $600,000 or so for a 3000 square foot home on 1.67 acres (back in 2004) to around $750,000 for that same home today.