Normally we feel as proud as Oprah when we show potential clients our pricing list (“you get an iPad, you get an iPad, and you get an iPad!”). We have been thrilled to keep Gateway’s prices affordable while meeting our high standards for quality workmanship.
Gateway runs as lean as possible without cutting our build standards, and we’ve worked to shield our customers from pricing increases through the COVID-19 pandemic. Unfortunately, we can no longer avoid industry-wide home price increases. Lately, some of our buyers are experiencing sticker shock when we start talking about pricing. The reality is that it costs more to build a home right now than it ever has in Gateway’s history.
While this information doesn’t change the price points, it may ease the sting a bit to know why Gateway – after avoiding a major price change as long as possible – has been forced to increase costs.
A Perfect Storm of Factors
Lots of people think everything starts when you go for pre-approval. In reality, there are things you could – and should – do to improve your chances of being pre-approved and to streamline the process.
The most obvious material required to build a house is wood. Lumber costs have doubled and even tripled nationwide in the last year, and there are several reasons why. In March and April, factories had to shut down due to COVID regulations. Even once they reopened, most factories have been required to run at a reduced personnel capacity.
In a normal year, it would have taken time for the lumber supply chain to catch up. Unfortunately, the increased demand for homes has put further strain on this backed-up industry.
This high-demand, low-supply situation can only lead in one direction: substantially increased lumber costs, which creates overall home price increases. According to the National Association of Home Builders (NAHB), in the U.S., the average cost to build a home has increased by $24,386 in lumber alone from April 2020 to February 2021. Costs continue to rise and, as of May, the increased cost to build a home is already closer to $34,000.
Specifically, some lumber prices have jumped almost 200% in the last 12 months. Spencer Foster, a Gateway project manager, gives an example: “A standard 2×6 stud has increased more than 300% over the last year (from just over $3 to over $10 each). When you have 300 studs in a house, it adds up quickly.”
Foster continues, “Not only have price increases been a struggle, we have also seen extended lead times for many products. We have to order a lot of products before we even dig a hole in the ground to make sure we have them by the time the house reaches that stage or is ready to close.”
Copper and steel, two critical materials for new home builds, are also in short supply for the same reasons as lumber. With refined copper shortages of more than 2.1% in 2020, copper suppliers, especially in Chile, cannot meet the increased demands. It’s expected that demand for copper, used in wires and cables, will continue to overtake production through 2024.
In the last quarter of 2020, unfulfilled steel orders hit a five-year high. Pricing for steel is the highest it’s been in at least 13 years, according to Reuters. Steel tariffs have contributed to already problematic supply and demand issues, drastically increasing steel prices in the last year.
Appliances, Faucets & Finishings
In addition to materials required to build Gateway homes, there are also supply and demand-related pricing increases on the things that go in the house. From appliances to finishings including faucets, knobs, and cupboard pulls, factory shut-downs and staff reductions have led to production deficits. This combined with increased housing demands leads to home prices increases across the board.
It’s not just US-based production either. Some overseas factories and suppliers faced far more rigid and lengthy shut-downs, slowing or altogether stymying production.
We’ve talked about a lot of nationwide and worldwide factors that are causing our building prices to increase. Closer to home, there is an added strain. Due to massive growth in Cheyenne and Northern Colorado areas as well as COVID-based labor changes, a shortage of subcontractor availability is leading to increased contractor prices. Contractors are charging more and contractors are being brought in from out of town. Both situations contribute to an increase in subcontractor labor costs.
Not a Gateway Increase But an Industry Increase
Large construction companies have huge margins. When costs go up, they can usually afford to take a temporary hit without changing their prices much. Now, even the big guys are increasing prices.
The local companies like Gateway? We already run a tight ship, keeping our costs low and passing most of that savings on to our customers. Though annual pricing increases are normal and accepted in the housing industry, like most others, the COVID-19 pandemic has been particularly hard on the entire housing marketing from a buyer’s standpoint.
In the Market for a House? What You Can Expect
Whether building your own home or buying an existing one, expect to pay more than you would have 12, six or even three months ago. The one (major) benefit of building over buying is you can avoid the bidding wars, sacrifices and trepidation of fighting for the few houses in the existing inventory. When you buy from Gateway, a trusted builder partner, you know where your house will be, what it will look like and when it’ll be ready — without having to drag your kids through open houses every Saturday!
With the housing industry on a major upswing, the time to build is now, not tomorrow. Contact Gateway to find out how, even with a necessary price increase, building with us is still the best value for your money! Contact us to get started today.