New constructions have always played an important role in the real estate market. When the number of new builds is high, people have more homes from which to choose. When building slows down, however, prices tend to climb due to the standard rules of supply and demand. Recently, new construction rates have started to slide, and some (including experts) are concerned that home prices may be on the rise as a result. Here’s what you need to know.
Reason #1 – A Mild Winter
The winter of 2016-2017 was quite mild in comparison to recent years, and because of this, builders could accomplish much more than anticipated earlier on in the year. Now, in the beginning of summer and early July, there’s simply less for builders to do. Scheduled projects have been completed ahead of time, which means many construction companies are lucky enough to take breaks and do “inside” tasks during the hottest parts of the year. This is an indication that new construction rates haven’t truly fallen as much as it would seem; they’re just being finished more quickly than normal.
Reason #2 – Workers are in Shorter Supply
Unemployment numbers are falling in many parts of the company, but despite this, construction companies report a lack of contractors – including carpenters, electricians, and plumbers – whose skills are needed to complete a quality build. This is especially hurting the rate at which single-family homes are being built; the frustrations continue to grow, and in many areas, it’s having a significant effect on wait times. Homeowners who have received funding for their new builds are sometimes waiting several months before construction can begin.
Reason #3 – Growing Materials Costs
Single-family homes require a variety of materials, and the most important of these is quality treated lumber. Unfortunately, the cost of lumber continues to rise globally, which puts a strain on construction companies trying to keep prices affordable while paying their workers a fair wage. Of course, the cost of other materials is also on the rise; everything from drywall to vinyl siding costs more now than it did only a few years ago. These increased costs may also be having an impact on homeowners as they choose whether to build a home or purchase an existing one.
Will the Slump Last?
Although it seems that new builds are slowing down with every passing week, experts agree that this isn’t likely to last. After all, mortgages are still quite affordable, and they’re even more accessible than they were just a few years ago. Potential homeowners with credit challenges may be able to buy homes sooner rather than later thanks to less stringent requirements. Another consideration is the fact that homeowners aren’t willing to sell their homes as readily as they were, which means the demand for new builds is likely to continue to grow in the future.
It might not seem like there are as many new homes going up this summer than last, and while this is causing some alarm, there’s really no need for concern. The mild winter and growing materials costs are the two key players in the slump, but the fact that new builds are growing in popularity will continue to push the construction industry forward.