The Expert Podcast

A lot of you have asked for some actual numbers on cost to build a house and what has happened to those numbers over the last year And here's a good example Going to have a home price calculator show up on our website pretty soon But in the meantime here's some hard numbers from bank of America their real estate analyst division has put some numbers out that are kind of interesting And it'll show you what's happening with the market First of all it says house prices have been The balistic over the last two years in part two a shortage Of materials and that's only part of the story What it says is that the supply chain is slowing We know about that but here the farther down are the particulars The bill for materials required to build an average size new single family home Increased 42% In the law up until 2021 And it actually went up more than that After 2021 materials costs roughly 35,000 more
So The value of raw materials and an average house is 118,000 So think about it 118,000 minus 35 It used to be somewhere around 80 Thousand dollars for materials Right So now it's one 18 That's a $35,000 lift just on materials What other costs go into a house that says labor and land costs Constitute the remaining two thirds Okay So One 18 times three That gives you roughly $360,000 for cost of a new home average size home By the time you sell it and have a markup for the builder Those houses sell for about four 15 to 420,000 That's the average price right now the median price of a home So if the Cost of labor went up two thirds And the cost of materials went up the same amount land It didn't go up that much but that's not equal third Typically you have your materials is a third You have your labor is a third of the cost of building a house And the other third is split 50 50 the cost of land And the overhead for the builder or the contractor So if you have a house let's just round it off let's call it 300 grand You have a hundred thousand for materials a hundred thousand for labor 50,000 for the lot and 50,000 for the construction process the overhead for the builder Equipment site work The insurance bonds and the fixed cost of that home builder That price did go up because insurance is higher Land price went up a little bit but not much So all those together add to the price of a house How is that going to affect the market Well it tells you right here home construction has consistently out paced inflation for the last 40 years So home inflation was always higher than the rest of inflation And it gives you a good list of what goes into a home framing lumber You know we know about that We've talked about that before the concrete foundation we've know about that windows and doors the trim work siding plumbing cabinets and there's a whole other list of other items And There's a lot of things that go into a house they're all higher The big question everybody wants to know is is it going to go lower
Now that may be demand is slowing Maybe fewer peoples are buying People are buying homes Maybe that's going to lower the price Probably not because all of the things that went into raising the prices in the first place Are locked in The labor costs to produce the items That's not going down Taxes are not going down the raw materials Those prices are not going down Diesel fuel for shipping That's not going down all of the items that are subcategories Of the finished house Are all locked in None of those prices are going down Sure There may be some demand reduction on home purchases But there's still plenty of people out there that need to buy a house and it may keep the price of houses from going up further But it's not going to reduce the cost of a house lower It's certainly not going to reduce the cost of the materials that go into a house just because buyers You know don't want to spend the money To buy a house at a certain price maybe four 50 or four 60 It doesn't change the fact that the lumber costs the same amount that the floor and costs the same amount The labor cost the same amount You're not going to be able to go to the employees of a homebuilder and say you know what The buyer doesn't want to spend this much for a house So you have to take a pay cut It's not how it works You're not going to be able to go to the lumberyard and say look the new home market is reducing So you have to charge less for your lumber Their costs are the same The cost of the the Logging the cost of the diesel to get the logs shipped to the mill The mill expense Shipping from the mill to the lumberyard All those costs are Already baked in They're not going to go down and there's not a huge markup in these products To where even if they wanted to they could reduce the price If anything else they're going to have to raise the price to get more markup to cover The fact they're not selling as much value Let us know what you think in the comments If you're a home builder what are you seeing with your clients If you're a consumer what are you seeing If you're an employee Is there any pressure On your role or your income Or maybe if you're on commission as a salesperson is there any change in your commission rates Tell us what you think in the comments