HOUSING COSTS RISING
Hikes due in part to building supplies and home lot shortages, Dennis Faulkner says.
It's not just demand for properties that is putting upward pressure on prices. The cost of building materials has been rising, making new homes more expensive to build. The cost of land, or rather, new lots, is increasing as well.
We are seeing the effects of the lockdowns on suppliers. Many lumber mills were shut down due to COVID-19 and some went out of business. It is taking time to ramp up supply to meet the sharp increases in demand for new housing in Canada and the United States. Lumber prices have significantly increased year over year.
I've talked to people who are putting off their plans to build a new deck as they don't want to pay today's prices for lumber.
Metals are also now becoming more difficult to source, which will have effects on costs for all kinds of building supplies. It appears that more and more building materials will see price increases, further escalating the cost of new homes.
Further to that, developers, early on in the pandemic, stopped developing land for new home lots. This has created a bit of a shortage, which is driving lot prices up.
In Edmonton, we are running out of spec home inventory and home builders have been raising their prices for new builds and many are no longer negotiating on price.
We will likely see costs continue to rise more than normal over the short term for new housing. If you are planning to build new this year, you may want to do that sooner rather than later.
Over the past five years in our province, builders have had to make adjustments in order to keep building. An oversupply of homes and reduced demand meant many had to trim costs as well as their margins in order to survive.
How things play out in the future is anyone's guess. We don't really know how long these spikes in prices will last or how high they will go. This puts home builders in a bit of a precarious situation.
Building a new home can take 10 months or longer and, with prices going up, it's more difficult to budget accordingly. Rising costs of materials over several months could erode profit as the price for the home is set before construction starts.
I suspect that all builders would like to return to the profit margins they had prior to 201617. This may mean that even when building material costs come back down (assuming they will), builders may not make a corresponding reduction in prices.
For those who would like to purchase a new home this year, there may be savings to be had by purchasing a spec home that is currently under construction. These homes will likely be priced a little less than a build that has not yet been started.
If the new home you were planning to build this year is now out of reach, I might recommend a different option that may be more affordable.
When working with clients who are looking for a new home, I will always suggest they consider a home that's two to five years old. I feel there are several advantages to this strategy.
In many of these homes, the homeowner will have built a deck, a fence, installed window coverings, completed their landscaping, purchased all appliances and maybe even built a garage and finished the basement. There are often significant savings and less headache and work with this strategy. Not to mention you are not living in a construction zone for two years.
Of course, you do not get to pick your exact finishes, colours and appliances. In my opinion, many of our tastes and preferences adjust over time anyway, so really, how important is it to customize every option?
Before you build your new home, it may very well be advantageous to consult with your trusted and experienced realtor, who may be able to direct you to good quality builders and options that you may want to consider. An experienced realtor can also advise on what upgrades have a better return when you go to sell your home.
Happy home hunting!