Inflation: How is it Affecting Residential Construction?

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It’s no secret that inflation is currently hitting record-breaking highs across almost every industry in the U.S. Home construction and renovation have taken their own hits, with many raw materials hitting a high of a 28.7% increase since 2019. With the housing market also at record-breaking highs, many people are at a loss when it comes to building a new home or renovating an existing home. Do you try and build now, before prices get any higher, or do you wait to buy a house when the market “inevitably crashes”? Here we’ll look at some of the specific ways inflation has changed construction, and a few tips for looking at your future projects.

Increase In Raw Materials

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One of the most important price points for construction is lumber price. The rapidly increasing price of lumber alone caused an average of an $18,600 increase in the cost of new houses. Lumber prices hit their all-time high in May of 2021 at about $1,700 per thousand board feet, which was triple the pre-pandemic price. Fortunately, this price has gone down somewhat, currently sitting at about $800 per thousand board feet, which is still over double its average price in 2019.

Drywall and plywood prices changed similarly, with drywall rising at an average of 21.8% per year since the beginning of 2020, and plywood rising at an average of 19.3% a year. Steel, cement, and even paint prices have also taken massive hits. 

One interesting factor to consider when looking at these numbers is the impact that diesel fuel has on the price of these bulk materials. Most bulk materials are flown and driven by diesel-powered vehicles. So, even if inflation goes down in other sectors, the construction industry will remain reliant on the price of gas to determine their own costs.

  These dramatic increases in material costs—as well as labor and subcontractor costs—raised the price of construction by up to 23% at 2021’s inflation peak. This number seems to have decreased slightly in recent months along with material costs, but much of the general data has not been updated for several months. However, the price of lumber in particular is a good indicator of where the construction market stands. 

Lead Times/Wait Times

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While inflation directly impacts construction, some of the same economic problems that caused this massive spike in inflation also increased the lead times on many products. As a company, the two products we’ve seen hit the harders were windows and doors. Windows have been taking up to 13 weeks to arrive, and doors can take anywhere from 6-12 weeks. Other custom items like cabinets can also have wait times of about 16 weeks. 

Other Considerations

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Will the market decrease? The future is uncertain, as economists are currently predicting that any return to normalcy will be a slow one. Lumber prices are not as sky-high as they once were, which is a positive sign, but those prices are never assured to stay. 

One massive factor in determining the start time of your project is the current lead times. If you’re hoping to work with windows, doors, or custom pieces, you may want to start working on your project months before you plan to actually break ground. With lead times up to several months, by the time you start working with your desired construction company, it may be a long time until the proper materials arrive in order to begin your project. 

Would it just be easier to simply buy a new home? While current housing prices are sky-high, some people have been predicting a 2008-style market crash, with lower home prices following after. Economists, however, don’t see that happening. Demand is simply too high, and many safeguards have been put in place to prevent a similar economic crisis from happening again. 

Should You Do Your Renovations Now, Or Wait?

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So, is now a good time to do renovations on your home? The answer is: it depends! It may be a long time till prices go down significantly, and prices may just rise more while you wait. Inflation is a tricky thing to predict. Aso, home renovations tend to have many personal considerations that no economist factors into their reports on the issue. Is this project something that you need to be done right now? Will this project change your life enough that it’s worth the higher prices? Are you prepared for the long wait times? One of the biggest personal factors is your relationship with the house itself. Are you planning on this house being your “forever home”? If so, your project will nearly always be worth that investment.

Prices may rise, and prices may drop. Ultimately, projects like these are almost always a long-term investment, and a good renovation, addition, or new construction project should add more value to your life than the price you put into them.  

Are you looking for a contractor to renovate or add on to your home? Get a quote from us to jumpstart your process!