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The Material Costs of Building a Home

The latest Producer Price Index (PPI) [1]shows that the prices paid for materials used in residential construction decreased 1.1% in June, breaking a four-month trend of increases. 

The decrease in the PPI, released by the National Association of Home Builders (NAHB), [2]is only the fifth time in the past two years where home prices fell. 

Prices for building materials have decreased 1.6% year-over-year, and June 2019’s decline is stark contrast from June 2017 to June 2018 when prices grew 8.8%.

Softwood lumber prices decreased by 1.7% in June, which is the third-consecutive month of declines. Prices for softwood lumber remain at their lowest levels since February 2017. 

Also seeing declines in June were prices for lumber and plywood, which fell 2.3%. Prices paid for softwood lumber and lumber, and plywood have decreased 23.1% and 17.6%, respectively, year-over-year. 

Gypsum products also saw their prices drop in June, falling 1.9%. Prices for gypsum products have increased two in the past 10 months.

The only building material to see increase was concrete, which grew 1.2% in June. Prices for concrete have grown by more than 1% in two of the past three months. 

A report by the NAHB in June stated that tariffs on $10 billion worth of building materials [3], along with regulatory costs, the shortage of construction workers, and concerns over housing finance have impact housing affordability. 

According to the report, regulations account for 25% of the price of a single-family home, and 30% of the cost of a multi-family development.

“Removing regulatory barriers that contribute to the increased costs of housing will pave the way to homeownership,” said NAHB Chairman Greg Ugalde, a builder and developer from Torrington, Connecticut. “Home builders and the residential construction community are committed to working with Congress to ensure homeownership is within reach of hard working families.”

Home buyers stated in an NAHB analysis that high home prices remain a barrier to homeownership [4]. Seventy-eight percent of buyers estimated they could afford fewer than half of the homes for sale in their markets. The NAHB states 53% of buyers seeking a home in Q1 2019 have been searching for three months or longer.