Housing costs will remain high despite the drop in the price of wood
Over the summer, there was a massive correction in the lumber and siding products markets, and although these markets are a bit higher than last year, most experts agree that the prices are closer to the true market level.
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From June 1 to September 1, 7/16 ”OSB coverings dropped 65% and 2×4 spruce uprights dropped 72%. You would think that with these types of drops home prices would drop, but don’t expect that to happen.
Here are 5 reasons you won’t see house prices going down anytime soon:
An overwhelming demand for housing
First, current housing inventories in many areas are less than a month and the demand for housing is overwhelming. As people turned back for more than a year flee large urban areas and the population continues to grow, coupled with a decade of under-construction in America, the country has been left with a huge housing inventory shortage. The demand for housing and the lack of inventory will keep prices high and continue to push prices up.
Understand that unlike the mid-2000s real estate bubble which was fueled by cheap money available to everyone, this is a real estate boom in which people are looking for a place to rest. This is very similar to the real estate boom that swept America for more than two decades after the soldiers returned from World War II.
High land costs and development
The next big factors that keep prices high are land costs and development. Over the past decade, the housing market had developed cheap land due to the crash of 2008. Millions of acres of land that were foreclosed and sold for pennies on the dollar were bought by huge builders who worked on low cost land prices. .
The cost of land pricing has increased, but the cost of development is worse. These costs push up the prices of the developed lots two to three times compared to just a few years ago. In addition, it is difficult to find developed lots. The last good supply of cheap foreclosed land is gone, and now homebuyers will be paying for much more expensive land.
No cheap labor
The third reason for high housing prices is that the days of cheap labor are over. America’s anti-immigration policy along with rising inflation is forcing construction companies to pay significantly more for labor, especially during this labor shortage.
In addition, as skilled craftsmen leave the construction industry, along with the collapse of trade schools over the past decade, there has been a decimation of the construction industry which has created a nightmare scenario for builders. Nobody expects labor costs to go down and, in fact, you can expect to pay more.
Other materials remain expensive
From a supplier’s perspective, the fourth reason house prices stay high is obvious: Nothing else in the construction supply chain is lowering prices. In addition, the country’s anti-trade policies over the past five years have resulted in huge price increases for most products used in residential construction.
Steel prices are skyrocketing and anything bought overseas costs a lot more because of the tariffs. America competes with the rest of the world for basic materials, and we’re seeing the first glimpses in the construction industry of what a true Made in America scenario looks like – higher prices, less variety. and much longer delivery times.
Government and labor regulations
Finally, the lack of competition due to labor and government regulations hinders lower construction costs as new competitors are unable to start a business. At present, if a businessman wanted to open a new factory of farms, he would face obstacles such as difficulties in obtaining equipment and metal plates to build the farms, in finding a building. and employ people to build them.
In the past, construction demand like the one we are experiencing today would create a plethora of new businesses, but today you just cannot find the resources. Therefore, large companies are working hard to acquire smaller fully operational entities.
Many people who want to buy a house in the summer may have waited for lower prices, only to find that the prices are much higher in the winter. Remember, Florida home sales season is winter.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” show which can be seen on AroundtheHouse.TV.