In this episode of The Real Build, I wanted to cover a huge topic in the construction industry: Material Increases. Demand is high, but supply is low. Construction material prices have risen so sharply in 2021 that the Associated General Contractors of America issued a rare Construction Inflation Alert. A move the group hasn't taken since 2008, citing a 12.8% jump of input costs for projects since the pandemic began.
Last year, supply and demand issues caused by the pandemic led to shortages of supplies and record cost growth for some materials.
Residential demand led to a 36% increase in lumber and plywood costs from December 2019 to December 2020
Because of the pandemic closures, more people had free time on their hands. This led to more projects and home improvement projects.
On top of this, due to people spending more time at home, more people are looking for bigger homes. When construction started up again, home buying season was in full tilt. This lag in construction combined with increased demand has had contractors playing catch-up. With growing new-home construction comes more demand for materials.
According to AGC's analysis, lumber and plywood gain 62%, and steel mill products record a 20% jump since April 2020. Diesel fuel, the lifeblood of the heavy equipment needed to build major projects, has surged over 100%.
What does this mean for the construction market?
People may be reconsidering building or renovating a home. But on the other hand, real estate prices continue to rise as well. Making building seems like a better route for some.
High prices continue pricing people out of the market.
Builders have extended build and delivery times.
Builders have to adjust the cost accordingly.Market data suggests it's unlikely that lumber prices will fall significantly in 2021. The housing market continues to see high demand while the lumber supply lags. Interest rates are also expected to remain low throughout 2021, which will support both higher commodity prices and real estate.
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