The cost of residential construction has risen significantly in the past year. This worries some homebuilders.
The latest Producer Price Index data from the Bureau of Labor Statistics shows that the cost of materials for residential construction in the United States has increased nearly 20% in the past year. Since the beginning of the year, building material costs have been steadily increasing. They are expected to rise by 4.9 percent in 2022.
Over the past year, prices for gypsum products and ready-mix concrete as well as softwood lumber, have fluctuated greatly. Inflation, persistent housing demand and supply chain challenges have created an unpredictable landscape for the construction industry.
Homebuilders are concerned by this unpredictability. The National Association of Home Builders/Wells Fargo Housing Market Index, (HMI), is a measure of homebuilder optimism about the future of the housing industry. It has been falling for five consecutive months, and it just reached its lowest level since June 2020.
Robert Dietz, Chief Economist at NAHB, stated that the housing market faces growing challenges. Building material costs have risen 19% from last year. Mortgage rates have risen to a 12-year high in less than three months. Based on current affordability conditions, less that 50% of existing and new home sales are affordable to a typical family.
This rapid rise in mortgage rates is particularly affecting first-time and entry-level home buyers.
The Biden administration announced a new plan for revitalizing the housing market in response to mounting concerns about affordability. The “Housing Supply Action Plan”, a new plan, aims to increase quality housing supply in the United States over the next five-years through legislative and administrative actions.
According to the White House press release, “When combined with other policies to lower housing costs and ensure affordability, closing the gap will result in more affordable rents and more achievable homeownership for Americans from every community.”
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