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Why Do New Homes Cost So Much Money?

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Why Do New Homes Cost So Much Money?

Categories: Homes Planning Real Estate

Published 04/08/2021

Ricky Singh on Unsplash

With mortgage rates trending upwards and a lack of housing inventory in California, prospective home buyers are beginning to consider an alternative solution to their housing needs.

Breaking ground on new construction to develop their own new homes is one option of the few alternatives available for home buyers. But before you leave this page and google how to build a new home, consider the fact that in California, land pricing can cost you anywhere between $100,000 and $2,000,000 — and that's just for the location of where you want to build your home! Not to mention you'll need to hire developers to plan, test the foundation, and most importantly, buy the materials you need to build.

If you're wondering how much lumber and other property building materials cost? Know that the cost is still at record-high levels and can cost you up to an extra $24,000. These insane lumber prices have led to homebuilder confidence falling two points in March, per the latest report from the National Association of Home Builders.

That drop in builder confidence is despite sky-high buyer demand, which hasn't waned despite rising home prices and climbing mortgage rates – the latter up 30 basis points from February.

The COVID-19 pandemic shut down a large swath of lumber mills in early 2020, handcuffing homebuilding crews all over the country and forcing home prices upward. NAHB Chairman Chuck Fowke noted that supply shortages and high demand have caused lumber prices to jump "about 200%" since April 2020.

A Homesnap report said total new listings increased only .22% in December, while total sales increased 19.29%. Zillow's Producer Price Index found February's 2.8% annual increase was the strongest since October 2018, meaning that while homes get sold, building material inventory, including lumber, will remain low and expensive.

Like most facets of the current housing environment, the continued successful rollout of the COVID-19 vaccine should do wonders for the cost of building materials, as more lumber plants will reopen in Canada and the U.S. – thus, increasing inventory and driving overall prices down. And with more homes built, overall sentiment – and builder confidence – should rise, Fowke said.

Are you still interested in building a new home? If not, that's perfectly fine, and we can help you purchase a home that's currently available on the market. Visit our Real Estate Listings page to view a few listings sold by Darryl Glass, and give us a call today at (510) 250-7918 for assistance in your home buying process.

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