Housing prices have been ballistic for the past two years, in part due to a severe shortage of housing materials. A new report outlines the elements that are really involved in building a home, highlighting how complicated (and costly) the process can be.
“Over the past three years, the cost of building a home in the U.S. has risen at an unprecedented rate,” wrote the authors of Bank of America’s 2022 “Who Builds the House” report, published on June 8.
A key factor in rising house prices is the shortage of building materials.
“The way homebuyers describe the supply chain right now is a snap,” Bank of America analyst Rafe Jadrosich, a co-author of the report and co-author of the report, told MarketWatch. something to fix, another one appears … there is always a new category that is creating the bottleneck “.
Bank of America estimated that the value of raw materials for an average single-family home in the United States was about $ 118,000 in 2021. Labor and land costs, which can vary by region, make up the remaining two-thirds. of the cost of a house.
Photo by Justin Sullivan / Getty Images
The bill for materials needed to build a new medium-sized single-family home increased by 42% from 2018 to 2021, making the materials cost approximately $ 35,000 more.
Bank of America estimated that the value of raw materials for an average single-family home in the United States was about $ 118,000 in 2021. Labor and land costs, which can vary by region, make up the remaining two-thirds. of the cost of one at home, Jadrosich added.
“The cost of housing construction has consistently outpaced general inflation over the past 40 years,” the report adds.
Rising inflation in the U.S. is also contributing to rising prices for “furniture and home operations,” a broad category that includes window and floor coverings and moving and transportation expenses, among other items, according to the ‘Office of Labor Statistics.
The index of furniture and household operations increased by 0.4% in May compared to the previous month, and increased by 8.9% compared to last year.
The Bank of America report, which took into account data from the National Association of Home Builders, detailed 14 components that go into building a home and how much they cost on average:
What materials are incorporated into the construction of a house?
- Wooden / engineered wood structure
This category represents the largest percentage of all household material, with 30.2%. The cost of wood content per household was about $ 35,488. Wood prices have been at a wild pace over the past year. Merchandise has reached an all-time high in 2021, when wood prices had almost tripled, especially during the last four months of the year. That meant a $ 18,600 increase in costs for an average new single-family home.
But experts expect demand to slow in the midst of a slowdown in home sales in the United States.
“An important factor in the price of wood is the price of wood (the sawn tree),” the Bank of America report said. The South “continues to be widely supplied with timber today,” he added, “as the permanent inventory is still above post-financial crisis levels.”
- Concrete (foundation)
This category accounted for 8.9% of the total contents of a house, but was expensive, around $ 10,526.
- Windows and doors
Windows and doors have had a notorious reputation among builders over the past year, with many companies struggling to find them.
Although they make up only 8.9% of the total material per household, they are, like concrete, expensive at $ 10,519. Bank of America noted that windows and doors are often a labor-intensive industry.
The shortage of windows has significantly slowed down the construction process, Jadrosich said. “You can’t finish a lot of houses if you don’t have the windows,” he explained. “You can’t put up your appliances, paint the walls and finish your floors, if the house isn’t sealed with windows.”
And until that window supply chain improves, “you’ll have a fairly slow and long construction cycle for many of the home builders,” he added.
And with the scarcity of specific items like windows, “it’s very difficult to live in the house if you don’t have one,” Jadrosich said. “Things like appliances, it’s hard to move in, or even get an appraisal until they’re home. It can really slow down the process.”
- Coating
- Plumbing
Plumbing has been one of the sectors hardest hit by labor shortages, Bank of America said. “Employee retention will be key to keeping up with rising demand,” they said.
- Wardrobes
- HVAC
- Cover
- Pavement
- Structural panels
- Wall board / plasterboard
- Appliances
- Architectural coatings
- Fiberglass insulation
- Others
Nor do we forget the different subsectors of housing construction, from flooring to painting.
And American households may face an unseen cost as a result of rising housing prices: the average home in the U.S. has shrunk considerably over the years.
Bank of America noted that from 1982 to 2017, the average area of a home has decreased eightfold on a year-over-year basis, three of which during and immediately after the global financial crisis.
The average area of a single-family home is now about 2,338 feet, according to fourth-quarter NAHB data.
Do you have thoughts about the housing market? Write to MarketWatch Journalist Aarthi Swaminathan at aarthi@marketwatch.com.