Building materials shortages have been an issue in most parts of the country for quite some time. The biggest, current issue is a lumber shortage. This has made it increasingly difficult for new homes to get built or renovated, and for homeowners to complete pending home improvement projects.
Building Supplies Shortages Has Raised the Prices of Homes
There are many theories on why there is a building supplies shortage. There’s been supply chain issues, pandemic-related delays, reduction in natural resources, labor shortages, etc. Regardless, these supply shortages have caused a huge influx in real estate prices.
Whether you are the buyer or the seller, you have likely seen that most properties around the country are going for a premium. Homes often sell for tens of thousands more than the listing price. This is a great time to sell your home. Conversely, if you’re looking to buy, you’ve probably found that it’s become a challenge due to the high prices and short supply. Part of this is due to the pandemic forcing more people to work remotely. As a result, workers decide to relocate in mass numbers. Most of the price influx is due to inventory of homes on the market. There simply are more buyers than available properties. And home builders are struggling to keep up – all due to the shortage of building materials.
Even current homeowners looking to complete a renovation or addition to their home are finding costs are far higher than expected. The cost of building supplies has meant skyrocketed costs for hiring contractors to complete the work. One thing that most markets in the country may notice is that with a shortage of supplies, current homes are selling for higher prices than they did in the past. The higher prices make it difficult to have any money left over for renovations or upgrades on older homes. They also make it difficult for construction companies to build affordable, new homes for buyers.
Interest Rates Compound the Issue of Low Real Estate Inventory
Due to the pandemic, the economy took a hit. As a result, interest rates were lowered quite a bit to encourage spending. This has enabled many consumers to purchase a home for the first time. Other buyers could now afford more than they could before because of the low rates.
There’s suddenly a larger-than usual number of buyers in the real estate market. But with the shortage in building materials, there is a limited number of homes available for them to purchase.
Lowered interest rates have allowed many existing homeowners to refinance their mortgage to complete renovations or additions to their homes. Thus, further increasing the demand for building materials and affecting supply.
With a limited number of homes for sale, construction companies will often increase homes being built to fill that demand. Since building materials are so expensive, this has become prohibitive in certain situations especially in areas of the country that cannot afford the higher home prices. This is particularly an issue with lumber, one of the most important materials in building a home. Due to the recent lumber shortage, the cost of lumber has skyrocketed.
With fewer homes on the market and less new homes getting built, the ones that do go for sale, sell at higher prices compared to what they may have gone for one to two years ago. This is great for a builder or seller who would like to make a nice profit on the property, but not so great for a buyer, who is forced to spend more.
Real Estate Bidding Wars
With a limited number of new homes being built and the cost of building a custom home much higher than usual, it is now common for homes to have lots of interested buyers. Each buyer tries to outbid the other to get the home – even for sub-par properties.
In the process, buyers have to find ways to stand out from every other bidder and submit the best offer on the home. Many homes are selling for much more than they are listing. Some are even going for more than the appraised value, paid in cash!
It’s become very competitive.
Skipping Real Estate Inspections is Dangerous
Because of the large number of bids on most properties for sale, it is now common for buyers to even forgo home inspections. This is to entice the seller to choose them. This is great for the seller because it means fewer issues to address prior to closing, but can be VERY dangerous for the buyer who could end up purchasing a home with significant issues that trigger years of repair and maintenance upkeep. A home inspection can be an incredible negotiation tactic. If you can’t make get a home inspection contingency in your Agreement of Sale, see if the seller will let you bring a home inspector through for informational purposes prior to settlement. Otherwise, schedule a home inspection for right after settlement. You will want to know about safety issues and any defects you might need to budget for right away!
For the sellers who prefer to be thorough, investing in a real estate home inspection can highlight issues with the home. And currently, these issues can cost far more than usual to remedy. Why? A lot of it has to do with the building materials shortage.
So, even honest home sellers are forgoing a proper home inspection at times. This is also dangerous, because, depending on the specifics of the deal, the seller could be on the hook for repairs after the sale is completed. If the buyer discovers issues that should have been disclosed in an inspection report by a certified real estate inspector, they can come after the seller. Or, even worse, the buyer could back out of the deal, costing you an untold amount of time and money.
Fewer New Homes Being Built
Currently, we are facing a national and global building materials supply shortage. There just aren’t enough materials around to build the homes and keep up with demand. And the few homes that are getting built are above the price point of what many buyers can afford. This creates a challenge for construction companies. Build and charge really high prices, or reduce building and make less overall profit. Until the prices come down on building supplies, this problem is likely to remain.
With no new homes getting built (or at least limited number of homes), this makes the housing shortage an even bigger deal. Buyers want to get into the market, especially with the low interest rates. There just aren’t as many options available with so much competition on the few homes that do come to market. This will continue to drive up the prices on all homes until supplies are properly replenished.
The good news is that there seems to be hope on the horizon. Lumber prices are projected to finally bottom out. The building trades industry is ramping up construction to meet demand. Also, supplies are slowly reaching levels that are required for the current market.
If you are currently thinking of selling or buying a home, it’s important to strongly reconsider foregoing a proper home inspection. The home inspection is a crucial part of any real estate transaction. It’s meant to protect all parties, ensuring that transparency about the property condition is always present.
Contact ARTI Home Inspections to schedule a home inspection today.