Here’s a quick outlook on new construction prices in 2021.
New construction prices are rising but by how much?
Earlier this year my team and I attended a continuing education course on this very topic, and we learned that from 2017 to 2019, the average lumber package for a single house cost between $21,000 and $26,000. In 2020, the cost for the same house spiked to $45,000. Then in 2021, it reached the $50,000 mark. Basically, that equates to a 100% increase in lumber prices. During that same period, the average cost of 1,000 board feet of lumber needed for this house rose from $350 to $400 to $1,000 to $1,050. Therefore, we’re also seeing the average return on investment for contractors shrink.
I don’t know if prices will increase that much higher, but it doesn’t look like they’ll come back down this year.
The big question for both Realtors and homeowners then becomes: How long will new construction stay this expensive? The answer mostly boils down to demand and the demographics driving that demand. The number of millennials out there purchasing homes has pushed the demand for real estate, and that’s why we’re seeing as many as five, 10, or even 15 offers for some resale homes under $300,000. These same millennials are the ones buying new construction, and new construction homes are very prominent right now because of how many there are and the fact that you can replace them easier than you can replace resale homes.
What will we see for the rest of 2021? Many people in the construction industry predict we’ll see the same price increases due to our high demand and low supply that’s been weakened by COVID. I don’t know if prices will increase that much higher, but it doesn’t look like they’ll come back down this year.
As always, if you have questions about this or any real estate topic, don’t hesitate to reach out to me. I’d love to help you.