Real estate markets are constantly changing and responding to larger economic forces, but the last nearly two years have really thrown a curve ball to the industry at large. Although national home prices had been on a steady incline prior to the pandemic, since summer of 2020 they have increased exponentially, by nearly 18% in fact. Although we have seen stabilization in some markets, home prices are expected to continue rising for the foreseeable future. In this article, we’ll explain the reason for this, and why it’s still a great time to buy nonetheless.
Price Increases Explained
For existing homes, scarcity was, and is, the main factor driving up their cost. For new homes, the challenge has been scarcity plus the rising cost of lumber and other building materials. From 2019 to the all-time peak in May 2021, lumber increased by over 400% for a thousand board feet. Lumber is the number one material used to frame houses, and according to the National Association of Home Builders, that cost added an average of $30,000 to each new home.
Today, the cost of lumber has plummeted since May, but at $650 per thousand board feet (as of October 2021), it is still well above the $400 averages we saw two years ago. Based on production and demand cycles, the cost of lumber is expected to continue rising at least through next year, along with other building materials like PVC piping, concrete, OSB (a type of wood panel), insulation, copper wire, and structural steel.
The cost of skilled labor also presents a challenge. There were construction labor shortages prior to 2020, and the pandemic only exacerbated them. While there are national workforce development programs aimed at attracting people to the housing industry and providing the training and certifications they need, companies are currently coping with smaller workforces and workers who may be sick or exposed, and must quarantine for long periods of time. Home building companies must be willing to pay more for skilled trade partners and craftsmen in order to complete homes.
What all this means for homebuyers is that, while home prices have stabilized in parts of the country, they have definitely not decreased, and they, too, will continue to rise for the foreseeable future, though at a slower rate. Due to materials and labor shortages, we are also still seeing delays in starting and finishing new homes. But there is good news…
Why Now is Still a Great Time to Buy
Because of the unpredictable nature of the real estate market, the best time to buy is when you are ready. If you are ready to make a move and build your dream home now, and are financially able, there is no question that it is a great time to buy. Interest rates continue to be low, which means, even with the added cost of lumber and materials, you can still afford “more house” than you could could just two years ago.
In 2019, the average interest rate for a 30-year fixed rate mortgage was 4.25%. On October 6, 2021, it was 3.13%. For more up-to-date and complete information on interest rates and mortgage options, we encourage you to speak with a lender. (If you’d like a recommendation for a reliable and helpful lender, please contact us.)
In summary, yes — the real estate industry can be unpredictable, but there is no guarantee that tomorrow, next month, or next year will be a better time to buy than today. In fact, the forecasts are showing that the costs of lumber, materials, interest rates, and therefore housing will continue to increase for the foreseeable future.
At Beacon Homes, we are thankful for our strong vendor relationships, which have enabled us to continue building homes for our valued customers with little disruption. We are staying ahead of market conditions and proactively ordering materials as early as possible to minimize delays. Construction managers also provide weekly updates throughout the build so that our customers are always up to date on the progress of their home. While we have faced the same challenges as most builders throughout the country, we are proud to continue building expertly-crafted, high quality homes in Oklahoma City and Tulsa and with the level of care and customer service that we’ve become known for.
If you are ready to buy, we are ready to build! Contact us today to learn more about our design process and move into the home of your dreams sooner than you ever expected.