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New Construction Sees Slight Dip in Business as Cost of Raw Material Doubles, but Remains Strong

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Wednesday March 17, 2021
New Construction Sees Slight Dip in Business as Cost of Raw Material Doubles, but Remains Strong

Over the last 6 months, the new construction industry has been thriving; this has been reflected in the monthly confidence index, generated by the National Association of Home Builders (“NAHB”). A score over 50 indicates increasing confidence in the new construction market, and the index peaked at 90 in November 2020 (by way of comparison, the index was under 50 in April and May of 2020, immediately after COVID began shaking things up). Unfortunately, the sale of single-family homes dipped, the index measuring expectations for future sales (within 6 months) increased, and the cost of raw materials increased. The net result is that March 2021’s index registered at 82 (down 2 from February 2021).

While the supply of homes is still abysmally low, demand remains historically high; this has generated massive business for new construction. Unfortunately, the cost of building is increasing, as are mortgage rates.

First, the cost of lumber has increased by over 100% since April 2020, resulting in additional $24,000 in raw costs for the construction of a single-family home. In fact, according to an investment banking firm BTIG, a record-high 89% of builders reported an increase in their base price for new construction.

Second, mortgage rates are slowly inching back to pre-pandemic levels, which were likely reduce demand. As demand for homes comes closer to the supply of homes, the demand for new construction will likely decrease as well. While the new construction market is still extremely robust, market factors suggest that new construction will see a slight decline in revenue.

At the Chernov Team we understand that knowledge is power, and knowledge of how various sectors of the housing market are performing is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most.

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