Cost of materials rise double-digits for builders, report says

When it comes to rising costs, real estate is in a league all its own.  For an astounding 118 months in a row, the price of a buying residential property has climbed on a year-over-year basis, according to the National Association of Realtors. That trend is expected to persist, given the degree to which construction materials are costing builders more to acquire.

In 2021, contractors spent approximately 20% more on items like lumber, steel, aluminum and roofing material than they did in 2020, according to newly released figures from the Associated General Contractors of America.

Among the pricier materials for last year was copper, which is a common metal used for fittings, hinges and door handles. The cost of copper and brass mill shapes was up more than 23% in December of 2021 compared to 12 months earlier, the Associated General Contractors of America reported.

What's pushing prices higher?
A major contributor to these spikes is inflation, which is intensifying with each passing month. Not only was inflation manifesting itself in 2021, but its deepening in 2022, contrary to the expectations of some economists. In January, the Consumer Price Index jumped more than 7% on a year-over-year basis, the Department of Labor reported. That's the largest swing in this measure since 1982.

Tariffs are another influencer. The Commerce Department, under the direction of The White House during two separate administrations, has imposed tariffs on softwood lumber originating from Canada. As 2021 came to a close, in fact, the tariffs were doubled from what was once 8.99% to 17.9%.

Anirban Basu, chief economist for the trade group Associated Builders and Contractors, told Construction Dive that tariffs are a huge problem, making an already challenging occupation that much harder for contractors.

"Contractors have the most difficult job in America today because every decision is fraught with risk and uncertainty," Basu said.

Higher building costs haven't priced out buyers — yet.

Home buyers still flooding market
An additional cost driver for contractors is the frenetic pace of home buying, despite the high inflation environment. While existing-home sales ticked down nearly 5% in December compared to November, they rose for three straight months prior to the December report, according to the National Association of Realtors. Plus, inventory levels have dropped below 1 million, with just a 1.8-month supply based on the current rate at which people are closing on their home purchases. 

As a result of inflation and supply chain disruptions, builders are warning prospective home buyers to be prepared for home prices to continue escalating.

"Building material costs are up 21% compared to a year ago, said Robert Dietz, chief economist for the National Association of Home Builders. "Their price and availability, along with persistent supply chain bottlenecks, remains the most urgent challenge for builders as they seek to boost production to meet rising demand."

He added that hiring hindrances for builders will also adversely affect home affordability.