Why is the price of new homes increasing so much?
The cost of building materials for all new homes and renovations in Canada and the United States has been steadily increasing over the past year due to pressures on the global supply chain.
What is the supply chain?
A supply chain is an order of processes involved in the production and distribution of a commodity. Basically, how different building products make their way from production, to your house.
Why are there issues with the supply chain?
The supply chain has been under pressure due to the pandemic, global weather issues including hurricane season on the Gulf Coast, freezing temperatures in Texas, and other past issues such as the mountain pine beetle and forest fires. These issues have affected countless building materials, including lumber most notably, but also resins which are used in the production of a variety of building products including vinyl siding, vinyl windows, adhesives, paints and more.
This is compounded by current high demand for housing in both Canada and the United States, labour shortages, closures due to COVID-19, and transportation issues. Simply put, the demand for product is outpacing manufacturers’ ability to supply material, putting pressure on home builders, trades, and suppliers, while creating volatile and unpredictable pricing.
What’s happening with lumber?
Specifically on lumber, price increases and shortages are also a result of huge demand in all areas of residential construction, renovations, and DIY projects in both Canada and the United States.
At this point, the lumber industry is still catching up to demand. Canadian mills are operating near 100% capacity, producing more lumber than they did in the months prior to the pandemic. However, US mills are still catching up –the US National Association of Home Builders has asked the US government for an inquiry as to why mills are not increasing capacity fast enough.
What is the impact?
The impact of the pressures on the supply chain have created price volatility and longer or uncertain lead times for all builders, suppliers and trades. While builders and suppliers have price agreements in place, with the global supply shortages suppliers can no longer supply the products at the previous cost and are forced to give price increases to builders with little to no notice.
This has resulted in a roughly 5-20% increase on a multitude of materials used in residential construction. In regards to lumber, over the course of one year, softwood lumber prices have climbed 169.4% to date according to Statistics Canada, and it’s expected that prices will continue to rise.
What to expect?
This price volatility means that home buyers and builders will need to be flexible and open for the fluctuating market price. Builders are likely to include a variable cost component to contracts and purchase agreements to address this pricing uncertainty. This will ensure that the contract remains viable for the builder while protecting homebuyers from overpaying based on anticipated increases. This also means that it’s important to be prepared for potential delays in the construction timeline.
With the housing demand remaining high in Canada and the United States it is difficult to say when the supply chain issues will be resolved and prices will stabilize. It’s important to stay in contact with your builder for the most up-to-date information on the status of your new home.