Are you thinking about building a new house or remodeling your current home? If you’ve been dreaming of building or renovating over the past few years, you’ve likely been put off by eye-popping prices for home construction costs.
Why exactly are construction costs so high in the first place? The COVID-19 pandemic is largely to blame for that. Factory closures and supply chain disruptions decreased the availability of construction materials, driving up the cost of steel, lumber, and concrete.
Lockdowns and COVID-19 outbreaks may seem like a distant memory now, but the pandemic continues to have an impact on home construction costs. Other factors, such as labor supply and interest rates, could affect costs as well.
Will these costs remain high or begin to go down in 2024? Let’s take a look.
The Cost of Construction Materials Will Likely Remain High in 2024
If you’ve gotten a quote from a home builder or stepped into your local big-box store lately, the cost of construction materials probably made you do a double take.
It’s not just your imagination: The cost of materials has jumped by an average of 19%.
Material prices have started to dip slightly as supply chains focus on recovery, but costs remain high compared to pre-pandemic levels. Demand for construction will probably keep those costs elevated throughout 2024 and 2025, according to industry experts. By 2024, prices could be 25% to 28% higher than they would’ve been compared to a pre-2020 trajectory, which will make building a budget-friendly home a real challenge for some.
Material and availability cost predictions for 2024 include:
- Roofing: Availability will decrease, but pricing should remain stable.
- Drywall: Prices are expected to rise, and availability will remain typical.
- Cement and concrete: Availability may drop, driving up prices even more.
- Lumber and steel: Prices should fall as availability goes up.
- Mechanical components: Prices will rise due to material scarcity.
Demand for Contractor Labor May Outpace Supply
With so many people eager to build homes, finding a builder that’s not completely booked up for 2024 could delay your project. Part of the reason why is that construction is facing a bit of a labor crisis, and will likely continue to struggle with supply in the coming years.
According to the CBRE Construction Cost Index, the construction industry remains challenged by an aging workforce. More than one in five construction workers is aged 55 and up, and as those workers retire, the labor pool is expected to shrink even more unless the industry manages to attract fresh talent.
Fueling the construction labor shortage is construction wage growth. Wages for construction workers have lagged behind the national average during the pandemic, driving potential workers to other, higher-paying jobs instead.
With fewer workers available to build homes, the cost of constructing a new residence could remain high.
Rising Interest Rates Could Affect House Prices
The U.S. Federal Reserve raised interest rates in July 2023, and it’s possible that rates could jump again in 2024. Higher interest rates may lead to a slowdown in the housing market, but it’s unlikely that average prices will fall as they did during the 2008 crash.
If interest rates continue to spike, many people will have trouble borrowing money to buy or build homes. That’s especially problematic when paired with increasing materials costs.
The Popularity of Remote Work May Drive Up Demand for New Builds
Thousands of companies transitioned to work-from-home setups during the pandemic. Although many of those companies have moved business back to the office, remote work remains a very popular perk for employees.
Employees who don’t see themselves heading back to the office any time soon may consider building a new home or renovating their current home to add an office. Coupled with the lack of available labor and escalating materials costs, the demand for new builds to suit remote workers may drive construction costs up further.
Smaller Starter Homes Could Ease Construction Cost Pains
If you’ve been in the market for a new home at some point in the past few years, you’ve likely been frustrated by unaffordable prices. It’s true that home prices have jumped quite a bit from their pre-2020 levels, with some areas of the country hit harder than others.
According to the U.S. Census Bureau, the national average price for a single-family home in 2022 was $540,000 (for an average of 2,383 square feet). Such prices have made it nearly impossible for many first-time buyers to become homeowners.
In 2024, builders plan to address unaffordability by building modest starter homes on smaller lots. To further slash home construction costs, contractors will focus on cheaper materials, such as vinyl and carpet, over more expensive ones, like hardwood and granite. Builders expect these starter homes to be most widely available in places such as Florida, Texas, and parts of the Midwest.
This is good news for both low- and high-income buyers. By using budget materials in starter homes, more luxury materials will be available for use in higher-end houses, which could drive prices for those building materials down slightly.
Building a Home Could Be Pricier Than Buying One
With the lack of available affordable housing, many would-be buyers are asking themselves, “Why don’t I just build a home instead?”
Building has plenty of perks that are worth considering. You’ll get to customize your home just the way you want it rather than buying a cookie-cutter house that looks like all the rest.
Fresh builds come with new materials, too. That can be more appealing than buying an older home with outdated materials that might need to be replaced soon. The cost to replace an aging HVAC or electrical system can be far more expensive than you might think.
However, building a home is highly likely to be more expensive than buying one, especially with the cost of construction materials. Plus, if you don’t already have land to build on, you’ll need to buy a parcel. That could add thousands to your total cost depending on where you’d like to put down roots. Just one acre of land in Rhode Island typically costs a whopping $350,400, for instance.
Still, if you’re willing to move to a cheaper area, such as rural Texas or Oregon, building a home could be the more wallet-friendly choice. You can push costs down further by picking budget materials, such as pine instead of cedar lumber and vinyl for your countertops rather than granite.
Build a Beautiful Custom Home With Schar Construction
If you’d like to remodel your house or build a brand-new custom home, don’t let home construction costs deter you. Schar Construction will be happy to work with you and plan a home that’s a perfect fit for your budget. We have more than 45 years of experience remodeling and building homes in Eugene, so you can trust that we’ll get the job done right.
We also offer home and garage additions if you’re interested in adding more space to your house. Need a modern office for remote work? Thinking about adding a mother-in-law suite to your property? Schar Construction will get it done for you!
To learn more about home construction costs, call Scar Construction for a free estimate at (541) 255-1624 today.