Over the last two years, the United States and the rest of the world have experienced economic challenges. While businesses are opening back up and people can walk freely without masks, the social and financial impacts of the pandemic remain relevant, especially in the construction industry. As such, we are continuing to see increasing home construction costs.
However, the new year is only a few months away, giving people hope for a fresh start and a change in the economic world. While we hope to see construction costs go down in 2023, persistent inflation continues to create financial challenges for custom home construction companies and aspiring home buyers.
What can we expect 2023 to bring regarding construction costs? Let’s discuss.
Can We Expect a Housing Market Crash in 2023?
During the famous 2008 real estate crash, construction costs and interest rates skyrocketed. Now, 15 years later, we are starting to see similar patterns.
Many commentators believe that a global recession will happen in 2023 and will take the housing market with it. Others remain hopeful that the housing market will improve over the coming year. In short, predicting a housing market crash is like predicting the weather. You can take inventory of all the signs and patterns that suggest it will happen. You can do everything in your power to prepare for the storm. That doesn’t always mean the storm will happen.
Determining whether we can expect to see a market crash in the coming year depends on different factors, such as the following:
Traditionally, more people are hesitant to purchase a home during times of inflation, especially when it comes to building a house from scratch. 2022’s recent inflation numbers could indicate a market downturn for next year, leading to higher costs for building materials, exterior finishes, and other construction expenses.
Fewer home buyers often mean higher building costs. As such, factors like interest rates can indirectly affect construction costs, increasing the average cost to build a new house.
Mortgage rates in 2022 reached up to 5%, creating a significant financial strain on aspiring homeowners. As a result, increasing interest rates are discouraging potential buyers from purchasing or building a home, thus increasing the costs of home constructions. While some predict lower interest rates in 2023, there is no guarantee that your dream home will require a smaller construction loan.
The Impact of Global Events
You’re already more than aware of the problems the pandemic has caused since COVID-19 came to the United States in 2020. Many industries came to a screeching halt suddenly and are still dealing with the fallout today. Even though many businesses are up and running again, a shortage of workers combined with increased demand muddled the supply chain. This caused a deficit in many material goods and sharp increases in prices.
When you add the war in Ukraine and China’s lockdowns into the mix, you find even more obstacles keeping the economy from stabilizing soon. While the lockdowns in China have mostly lifted, they could reoccur later.
Fortunately, the situation began looking up a bit in September 2022, with cargo ships finally unloading, increasing the availability of in-demand products. At the end of 2022, home construction costs slowly decreased, and this trend may continue in 2023.
What Does the Price of Materials Look Like?
One of the most significant factors impacting home construction costs is the price of materials, specifically lumber.
The cost of lumber tells a story. Before the pandemic’s far-reaching impact, 1,000 board feet of lumber typically cost $300 on average. In the spring of 2021, the same amount of lumber cost five times its pre-COVID price. While prices continue fluctuating, they now generally stay closer to their pre-COVID cost. Therefore, you can expect any price increases to be short-term.
When analyzing the cost of construction materials, it is important to remember that they do not all move in unison, creating mixed predictions. For example, some say that the overall cost of construction materials is growing exponentially with no sign of slowing down.
However, according to the Bureau of Labor Statistics, the growth rate of construction materials in July 2022 was 14.8%. While the growth rate of increase is slowing, price increases are cumulative. As a result, slower growth still means increasing prices.
2023 Home Construction Cost Forecast
While predicting where the housing market will go is nearly impossible, we will likely see home construction costs increase in 2023 but only temporarily.
According to the National Association of Home Builders (NAHB), housing is more expensive than it’s been in ten years. Factor in rising labor costs, and the projected landscape for construction projects seem bleak on the surface.
To predict what 2023 will look like for construction costs, we must analyze the following factors:
- The impact of global events on the economy
- The increasing price of materials
- The potential for a housing market crash
As we said, the world is still dealing with the after-effects of the COVID-19 pandemic. This means that economies are still recovering, directly impacting the cost of labor and other construction materials.
Meanwhile, the price of materials seems to continue increasing. Therefore, as a direct contributor to construction materials costs, we can assume that rising material prices will come with increased building costs.
Finally, the risk of a crashing housing market significantly impacts potential construction costs. During times of inflation, homeownership often dwindles. This means fewer home purchases and, according to the laws of supply and demand, higher home construction costs.
With these factors in mind, it is likely that we will see higher home construction costs in 2023. Custom home builders are having to pay more for labor and materials, requiring them to increase their prices. As a result, home construction costs are unlikely to fall after the new year.
However, these rising costs should be temporary and only last around two years.
Dream Homes Are Still Possible with Custom Home Building and Remodeling
While we can expect to see home construction costs continue to rise in 2023, purchasing your dream home with adequate square feet and amenities is not impossible.
Custom building a single-family home is a project well worth the investment. Here are a few reasons why:
- Building a new home can be more cost-effective than purchasing a home at the sticker price.
- You can steer clear of the bidding wars plaguing the housing market right now.
- The older the home, the more likely it needs repairs or upgrades. A brand-new home will not have such problems, making it a more cost-effective decision over time.
- The resale value will likely stay stable.
- You can build your dream home exactly how you envision it.
Although home construction costs will likely increase in 2023, we can not guarantee anything. Even though we predict them to rise next year, it should be a temporary increase.
Whether you’re building a new home or remodeling, you need a custom home builder that understands the current market and can help you make sound decisions during the construction process. Contact Schar Construction today to get started on your custom construction project. Call us at 541-329-4769 or fill out our contact form, and we’ll reach out to you.