Raw material prices skyrocket causing real estate prices to increase
- The price of lumber jumped about 320% since last year.
- Copper increased by about 96% since last year while steel increased by around 198% in the past year.
- Real estate prices have surged 12% every year, and low supply of new housing adds to the increase.
- New startups like Ark7 found ways to help investors capitalize on the high demand of housing.
In order to create a property, the structure and frame must be built. 90% of new homes built in the past three years have been wood-framed. The price of lumber jumped about 320% since last year. Without the bones of the operation, the home is out-of-commission, unless you have more money to import it. This is causing real estate prices to increase.
Lumber supply is down due to pandemic closures and natural causes
Last week, Wells Fargo released an analytical study of the sharp increase in cost of lumber. They found that a variety of reasons led to this increase with the first being an error in the basic principle of supply and demand.
The COVID-19 pandemic suspended, hindered and shut down many sawmills that provide for housing projects. This shutdown caused many aspects of the industry to struggle, such as rehiring workers and dealing with higher gas prices for wood transportation. Other natural forces like wildfires in the Northwest have been a cause for wood shortages and slow sawmill production. Canada has its own battles, as it deals with beetle infestation that ruined about 15 years worth of lumber supplies. Canada is the United States’ largest importer of lumber, as it accounts for 83% of all softwood imports totaling around $4.5 billion. The US is having to turn to European exports, which are much more expensive than its neighbors to the north.
Effects on Real Estate
All of these inhibitions created a drastic gap between the amount of lumber available and the steady rate of home construction. This creates a historic surge in wood pricing at around $1,645 per thousand board feet, when only one year ago in 2020 the price was $346 per thousand board feet. It’s not just lumber that’s had an uptick in price, but also copper, steel and other materials important to building projects. Copper increased by about 96% since last year while steel increased by around 198% in the past year.
According to Investopedia, the number one indicator of the real estate market is construction spending. All of these increases in price have also elongated the time it takes to receive the item, and overall, finish a new housing project. This is why many have turned to purchasing pre-built homes. Real estate prices have surged 12% every year, and low supply of new housing adds to the increase.
Many are seeing effects on pre-built homes as well. According to Mark Labourdette, owner of a California home building company, a kitchen remodel costs about twice as much as it used to. These issues have the possibility to spill over onto investors. Repairs and other redesigns that fall onto property managers could mean trouble for real estate investors. This is especially burdensome when the investor lives far away from their investment property.
New and Innovative Solutions to Combat Material Shortages
New startups such as Ark7 have noticed these issues and roadblocks to real estate investing and found ways to capitalize on the high demand of housing. One of Ark7’s founders, Jim Holt has over 15 years of real estate experience. Our team takes care of property management pains for you and chooses properties in high-demand areas. We also look for homes in close proximity to good schools, parks and amenities. Ark7 offers these properties in an online format for users to buy fractional shares in multiple properties. This allows investors to diversify their portfolio while not having to worry about property management.
Time is of the essence! Make an account today to browse properties in hot areas like Austin, Berkeley and Seattle. All you need is $5.4 to get started! What’s holding you back? Sign up now at www.ark7.com