Will the cost to build go down in 2024?
Are you dreaming about building a new house in the Northwoods? If so, you’ve likely been shocked by the prices being quoted by builders for new home construction and remodeling.
Why is it that construction costs are still so high? The COVID-19 pandemic is largely to blame for that. Factory closures and supply chain disruptions decreased the availability of construction materials, driving up the cost of steel, lumber, concrete and just about everything else that goes into the construction of a new home.
Lockdowns and COVID-19 restrictions may seem like a distant memory, but the aftereffects of the global pandemic continue to have an impact on home construction costs. Other factors such as labor supply and higher interest rates have also had a negative impact on construction costs.
The question we hear most often is will these costs remain high or will they begin to go down in 2024?
Industry experts are forecasting the cost of construction materials will likely remain high in 2024
The cost of building materials has jumped by an average of 19%. Material prices have started to dip slightly as supply chains focus on recovery, but costs remain high compared to pre-pandemic levels. Demand for construction will probably keep those costs elevated throughout 2024 and 2025, according to industry experts. By 2024, prices could be 25% to 28% higher than they would’ve been compared to a pre-2020 trajectory.
Material and availability cost predictions for 2024 include:
· Roofing: Availability will decrease, but pricing should remain stable.
· Drywall: Prices are expected to rise, and availability will remain typical.
· Cement and concrete: Availability may drop, driving up prices even more.
· Lumber and steel: Prices should fall as availability goes up.
· Mechanical components: Prices will likely rise due to material scarcity.
Demand for contractor labor continues to outpace an already scarce supply
With so many people eager to build homes in the Northwoods, finding a builder that’s not completely booked for 2024 could delay your project. Part of the reason why is that construction is no different than most businesses in that it is facing a continued labor crisis made worse by the pandemic, and will likely continue to struggle with supply in the coming years. According to the CBRE Construction Cost Index, the construction industry remains challenged by an aging workforce. More than one in five construction workers is aged 55 and up, and as those workers retire, the labor pool is expected to shrink even more unless the industry manages to attract fresh talent.
Fueling the construction labor shortage is construction wage growth. Wages for construction workers have lagged behind the national average during the pandemic, driving potential workers to other, higher-paying jobs instead.
With fewer workers available to build homes, the cost of constructing a new residence will likely remain high.
Rising interest rates could affect house prices
The U.S. Federal Reserve raised interest rates in July 2023, and it’s possible that rates could jump again in 2024. Higher interest rates may lead to a slowdown in the housing market, but it’s unlikely that average prices will fall as they did during the 2008 crash.
If interest rates continue to spike, many people will have trouble borrowing money to buy or build homes. That’s especially problematic when paired with increasing materials costs.
Building a home could be pricier than buying one
With the lack of available homes in the Northwoods, many would-be buyers are asking themselves, “Why don’t I just build a home instead?”
Building has a number of perks that buyers are not afforded when purchasing an existing home. One of the most important things to consider when weighing building vs. buying existing is that you’ll get to customize your home just the way you want. Many of the existing homes on the market in the Northwoods are in need of significant remodeling, which is also a very expensive and limiting proposition.
The rising popularity of the short-term rental market has driven the cost of existing homes to levels never before seen in the area. Buyers are justifying the initial investment in a new or existing home with the potential of significant rental income to offset the expense associated with owning a home in the Northwoods. An oversaturation of the rental market could also have an impact on the cost and availability of property, and the willingness of homeowners to over-invest in a vacation home.
The cost of building a new home is highly likely to be more expensive than buying and existing one, especially with the cost of construction materials and the scarcity of buildable land. If you don’t already have land to build on, you’ll need to buy a parcel. Buildable sites, especially those on water, are in very limited supply and those that are available come at a premium.
With demand for new builds being strong and showing no signs of easing, the decision on whether to build now or wait is anyone’s guess. There is no shortage of people that want to build in the Northwoods, but we are seeing more and more those same people taking a step back and looking at the cost of construction, the state of world politics, rising interest rates and high inflation as reasons enough for pause. It seems that for every person that exits the new home market, two more are there to replace them.