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New Home Construction Cost Increases

As if 2020 wasn’t challenging enough, home builders are seeing new home construction cost increases during the peak season this year. With as much as an 80 percent increase in the cost of lumber over the last four months*.

While the cost of new homes has risen gradually over the last few years, a recent spike in softwood lumber prices has caused an increase of over $16,000 to the average single-family home in just a few months. As of July 2020, the national median home price surpassed $300,000 for the first time ever.

Quickly rising costs and supply chain shortages for lumber and other building materials combined with economic uncertainty because of the coronavirus pandemic might seem like the recipe for a major slowdown in the housing marketing, however 2020 is not a typical year. Pent-up buyer demand coupled with historically low interest rates and limited inventory have combined to create heavy competition for homebuyers hoping to lock-in a low fixed-rate mortgage on a new home.

The NAHB/Wells Fargo Housing Index, which measures home builder confidence, hit an all-time high of 78 in August 2020. That confidence is bolstered by the fact that the supply of new home inventory is currently very low.

Historically low interest rates

According to a July CNN Business article, “The average 30-year fixed-rate mortgage fell to a record low of 2.98% this past week, according to Freddie Mac. That’s the lowest level in the nearly 50 years of the mortgage giant’s survey. The 15-year fixed-rate mortgage dropped to 2.48%.”

Between historically low interest rates and limited inventory on the market, many Realtors and Builders are seeing homebuyers in bidding wars to try and secure a new home even with the new home construction cost increases that have occurred over the last four months.

The price of lumber

*According to a recent NHAB article, … by the time Random Lengths reported prices on Aug. 21, the cost to builders had risen to $30,470 for the softwood lumber products in an average single-family home, and $11,061 for the products in an average multifamily home. This is a $13,543 (80%) and $5,122 (86%) increase respectively, in only four months.

The sudden spike in lumber prices coupled with the supply chain slowdowns and interruptions because of the coronavirus pandemic have increased the cost and time to build new homes. This has resulted in available inventory on the market shrinking to a three-month supply.

Other Factors Limiting New Home Inventory

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.

Shortage of Skilled Labor

With approximately 300,000 unfilled construction jobs as of June 2020, 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.

Conclusion

Even with new home construction cost increases and limited new home inventory, the real estate market is experiencing a buyer’s frenzy this summer as homebuyers look to lock-in a low interest mortgage on a new home.

It is unlikely that new home prices will go down anytime soon, if ever, but the mortgage interest rates will eventually go up. That makes this a great time to buy a new home, even if they are getting harder to find.

More Info

For more information about McKee Homes communities, floorplans and quick move-in homes, please use the form below, our website contact us page, or give us a call at 910-672-7296 to talk with one of our friendly New Home Specialists.

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McKee Homes Quick Move-In Sales Event

In recent years the need for new and affordable housing has grown exponentially. A recent analysis on new home construction by the US Dept of Housing and Urban Development showed that the demand for new housing was 10 times higher than the amount of housing available. Additional reports have placed new home construction starts at a sixty-year low.

Along with the housing shortage has come an increase in new home prices; Zillow recently reported an increase in home prices of approximately 7.6% over the past year. While this increase is not as drastic as in previous years, prices are still trending slowly upward. This, combined with the shortage of affordable housing, has made it more difficult for buyers in the market to find a bargain when looking for a new home.

Obviously, this bodes well for new home builders; it means that demand for new homes is high. However, budget conscious buyers may be feeling stressed over the lack of affordable homes. Additionally, the ever-present possibility that mortgage rates could rise puts pressure on buyers to purchase at the current rate to avoid paying more later.

Quick Move-In Homes: Available!

To counter these market issues, McKee Homes is kicking off 2019 with a Quick Move-In Sales Event. For Quick Move-In homes, the building process is complete. The stress that can accompany a new build is eliminated; there is no waiting on lot permits or worrying about bad weather conditions affecting construction. McKee’s Quick Move-In homes are gorgeously finished, spacious, located in beautiful neighborhoods, and ready for a family to move right in.

McKee Homes Quick Move-In sales event incentive offers vary by neighborhood and home. Select qualifying homes are eligible for $7,500 in incentives and buyers may be applicable for reduced mortgage rates when using a McKee preferred lender. To cap it off, some of these homes also qualify for an extra $5,000 in incentives. Additionally, these new homes are available now – What could be better?

The only thing more impressive than the incentives offered on Quick Move-In homes is the large selection available. McKee Homes has 30 neighborhoods throughout eastern North Carolina, and Quick Move-In homes are available in many of these neighborhoods. McKee Homes’ new home sales consultants are always available, happy to answer your questions, and ready to help find the best neighborhood and home for your family. Give us a call at 910-672-7296 today, and set a VIP appointment to view any of our beautiful homes.