With new home prices going up in the last year, many home buyers are wondering how high new home prices will go in 2018 and whether they will be able to afford a new home.
There is a shortage of new home inventory on the market with homes that are available getting more expensive by the month. In addition, 30-year fixed rate mortgage interest rates are predicted to go over 5% in 2019. Increased prices plus higher interest rates could make waiting to buy a new home an expensive decision for homebuyers.
Shortage of buildable lots and increased land prices
The lack of buildable lots is one of the largest issues facing home builders and one of the reasons that new home inventory is not keeping up with demand. Many builders don’t have the resources to develop their own land and depend on large developers to create buildable lots. This has created a backlog and increased the cost of new lots.
Increased regulatory costs
Local land use policies have made it more difficult to develop buildable lots and increased regulations have made the lots more expensive. This is leading to smaller lots and homes with higher costs that can make it difficult for builders to deliver new homes at a price the market can bear.
Sharp increase in construction materials due to tariffs
Another reason for new home prices going up is a recent effective 20% tariff rate on Canadian softwood lumber which is partially responsible for increasing the cost of a new home by approximately $9,000 in the last year. This acts much like a tax on homeowners and renters as even a typical apartment has gone up by as much as $3000. Other factors in the sharp rise in lumber are storm related repairs, especially in Texas and Florida, as well as increased demand as the result of a healthy home building market.
Many steel and aluminum products used in construction are also being affected by new tariffs. Homebuilders are having a hard time keeping up with the rapid rise in construction material prices while trying not to raise prices to the point where they can no longer sell their homes.
Shortage of Skilled Labor
With approximately 230,000 unfilled construction jobs, new home production has been greatly constrained which is another factor preventing home builders from meeting the demand for new homes. When the recession hit in 2008, many workers left the construction industry for other careers. Fewer young people are interested in construction related careers these days with parents steering them toward technology and white-collar careers.
Higher interest rates on home mortgages
The Federal Reserve raised its benchmark rate for a second time during its June meeting and is predicting four rate hikes in 2018. 30-year fixed rate mortgages averaged around 4.86% in May and are predicted to go above 5% in 2019. While this is historically still a very good rate, it lowers the amount homebuyers can pay for a home at a time when new home prices are going up.
The combination of fewer buildable lots, increased regulatory fees, higher material costs and skilled labor shortages are keeping new home inventory low and new home prices continue to rise. When higher home mortgage interest rates are added to the equation, the number of people who can afford a new home gets reduced.
With new home prices going up quickly in 2018, anyone considering buying a new home in the next few years should consider doing so sooner rather than later or they could find it difficult to find an affordable home or to qualify for a mortgage loan.
To find out more about new home availability and prices in Eastern North Carolina, please visit McKeeHomesNC.com or give us a call at 910-672-7296.