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Why high-flying US house prices are about to receive another bump



The history of the US real estate market has been characterized by constant demand and limited supply in recent years, which has driven prices higher and higher. Now a new chapter has opened up for the industry and its customers: the rising cost of building materials.

Tuesday's reports highlighted both robust buying activity and acceleration in home prices. The S & P CoreLogic Case-Shiller Index showed that property values ​​in 20 major US cities rose 6.8 percent in February. This is the largest increase since June 201

4. Government data showed a faster than projected rate of new-home sales in March and massive upward revisions over the previous two months.

The inventories of previously owned homes are knocking down the lowest levels in at least 19 years, a major reason why durable demand has mushroomed in itself, adding to the new expanded real estate market. Now that the cost of timber and other building materials is going up, there will probably be no relief for the buyers.

In fact, construction companies such as PulteGroup Inc., Lennar Corp. and KB Home show that they are successful The passing on of construction costs and signaled margins will remain in good condition in the future.

"There is pressure on some of the commodities, and we are all struggling with some of the work pressures that have been in the news, so we expect you to remain under pressure and in the first quarter we were able to keep up with the cost pressure outperform the price. "
– Jeffrey Mezger, CEO of KB Home, on March 22, winning negotiations

" Inflationary pressures on commodities are in. The good news is that we have seen a market that has allowed us
– Robert O & # 39; Shaughnessy, CFO at Pulte, April 24

The cost of materials is important because everything from foundation to framing to painting is the largest share of a typical single family home purchase according to an annual survey by the National Association of Home Builders.

Build to cost

From the slab to the rooftop, materials are the largest portion of a typical new US single-family dwelling

Source: National Association of Home Builders Survey Findings


The framing of houses or putting up Roofs and walls account for 15 percent of the cost of the construction. According to Random Lengths, a publisher of information on wood products, the total cost of sawn timber increased 16 percent between December and March.

And it's not just wood. A Labor Department track of prices paid at the producer level for construction inputs – everything from chipboard and plumbing to concrete and insulation – was 5.1 percent in March over a year earlier, the largest annual advance in nearly eight years.

So far, neither higher house prices nor a four-year high in mortgage costs have been enough to dissuade buyers. Conference Board Consumer Confidence Index results on Tuesday showed that 1.7 percent of respondents planned to buy a new home in the next six months, the highest proportion of this expansion.

Help form that pickup is a bigger share of Americans who say that now is a good time to buy, because prices will not soon be falling. Sixteen percent of consumers polled by the University of Michigan in March said that the conditions for buying a home are "good", considering that prices are not getting better.

At some point, affordability will become a bigger problem for those who want to own a home. However, so far, consumers are accepting higher house prices and builders remain relatively optimistic about the market outlook.


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