With New Home Costs Coming Down, Could Newly Built Homes Help Level Out the Market?

Builder walking with wooden beam on shoulder in an unfinished wooden construction site.

If you’ve spent any time watching the real estate market this year or working in the field, you know we’re navigating one of the hottest seller’s markets on the books.

Fortunately, a recent article on HousingWire suggests that a slight decrease in housing material costs could mean the market is beginning to level out.

Will the results of those findings take immediate effect? Probably not.

Still, the decrease is a positive sign that new construction could begin to pick back up and relieve some of the pressure on existing inventory, which would level the playing field for both real estate agents and their clientele.

The Connection Between Distribution Issues and Rising Home Costs

Ultra-low inventory alone can skyrocket housing prices, but this time, the pandemic also played a role with delays in shipping times and distribution of raw materials like lumber, oriented strand board (OSB), as well as flooring and roof decking. As one would expect, those delays slowed the progress of newly-built homes, putting an even bigger strain on inventory and pricing.

According to HousingWire, the median sales price of a home in June of 2021 was $374,400 — an 18% increase over the same time last year. In May, that number was $430,600.

These rising home costs correlated with falling rates of existing home sales from April 2021 to May 2021, suggesting affordability is likely the key factor.

For listing agents, these rising home costs are good news. But for buyer’s agents — and especially those who work with first-time homebuyers — these distribution issues and rising home costs can be a challenge.

However, there’s never been a better time for buyer’s agents to focus on other aspects of business like forming and nurturing long-term relationships, increasing their visibility as an expert, and re-engaging with inactive leads to offer advice.

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Falling Lumber Costs Could Level Out the Market

Although it may sound like the market still has a long way to go to restore the balance, the same HousingWire article highlighted that lumber costs are indeed decreasing despite being 210% higher than last year.

According to Keller Williams chief economist Ruben Gonzalez, this slight drop in lumber cost may mean we’ve moved past peak lumber prices, which could encourage builders to put new product on the market.

For real estate agents, this is the perfect time to “plant seeds” with home builders, so to speak. As building costs and distribution begin to normalize and homebuyers seize the opportunity, home builders can be a high-quality source of leads for real estate agents.

How to Move Forward

Again, even though the effects of these changes may not take place immediately, we’re moving in the right direction.

Overall, Gonzalez believes the restrictive conditions in the existing home market paired with strong demand, continued economic recovery and sustained low-interest rates will ultimately drive new construction and open up more opportunities in the near future.

In other words, real estate agents who use this time to grow their sphere of influence and double down on their marketing efforts will be positioned to thrive as more buyers re-enter the market.

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