New houses cost more as material prices jump 3-17-2021

Click the above for Wall Street Journal article dated 3/17/21 regarding skyrocketing materials needed for construction. Just about everything that goes into erecting a new home is costly.  Land is at a premium, labor prices are up, but hugely impactful is that nearly every raw material needed for a build is seeing it’s cost or resale price climbing.

As of late January, our inventory supply (homes on market) continues to be extremely constricted, and if we do not see listings come to market in greater numbers,  the pressure caused by  low supply versus many people wanting to buy will lead to even greater home price appreciation during 2021 than we saw in 2020.

From The Cromford Report in early January:

“Prices have accelerated due to the huge imbalance between supply and demand, but as yet we have only seen part of that reaction. Sales prices are a trailing indicator and lag behind the leading indicators by up to 15 months. We can therefore expect to see prices move even higher during the next 12 to 15 months with appreciation rates possibly rising over 20%.

Those who think the increases in mortgage delinquency are going to to halt these rise are wishful thinking. The level of delinquency is nothing like as bad as it was during the 2006 to 2008 crisis and the level of delinquency has improved for the last 6 consecutive months. Any extra supply coming onto the market, due to home owner financial distress, is likely to be snatched up quickly by desperate buyers. Few of the homes with delinquent loans are likely to make it to foreclosure. They can be quickly sold prior to foreclosure to pay off any loans and the record levels of home equity will leave the vast majority of sellers in the black even if they can no longer afford their mortgage payment. It is the strong home equity levels that will motivate distressed buyers to sell up rather than walk away. In 2007 prices started to crumble due to huge excess supply, meaning many homes went underwater quickly and homeowners could see no advantage from avoiding foreclosure. The current situation is opposite, not similar.”

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