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The Rising Cost of Building a Home in Kansas City

The Commerce Department reported last week that sales of newly-built single-family homes in August reached their fastest pace since September 2006. They also mentioned another real estate landmark: new construction just topped 1 million sales. That marks a 43% jump when compared to last year.

“Already, more new homes have sold in 2020 than did in all of 2019,” says Danielle Hale,®’s chief economist. “With the number of existing homes for sale down considerably from a year ago, new homes are an important segment of opportunity for home shoppers.”

“More construction is needed,” National Association of Home Builders, Chief Economist Robert Dietz says. “The challenge will be whether material and labor are available.” Higher lumber costs and the limited availability of building materials in some markets is leading to higher prices in new-home construction. Lumber prices are now up more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home in Kansas City.

The average price of a new home in August was $427,856 for a modest four-bedroom home in the Kansas City Northland (up from $405,000 last year) and $593,104 for that same home in Johnson County, Kansas (up from $479,925 last year).

What’s causing such a huge increase in the sales price of these homes? COVID-19 has sent lumber prices through the roof. High demand and low supply are fueling the price surge after the pandemic set off a building boom.

“The lumber purchasers pulled back thinking the market was going to drop based on all of this and in fact with low-interest rates and pent-up demand the market increased,” said Joe Fowler, President of the Home Builders Association of Greater Austin. Low-interest rates turned renters into buyers and do-it-yourselfers suddenly had their weekends free to tackle long overdue home improvement projects. “Everybody was caught off guard,” said Fowler who is also an Austin home builder. “The demand has far outpaced what our supply can give us.”

Depending on the job, contractors say lumber prices have jumped anywhere from 50 to 100 percent since before the pandemic started. New home buyers in Kansas City should brace for even worse news as many homebuilders are raising their prices by an average of 16% to compensate for the increased lumber costs and they’re also telling their clients to expect delays as supply is unpredictable.

With lumber mills slow to reopen in an uncertain economy and demand growing for new homes and from do-it-yourself home improvement projects by people stuck in their houses, the price of lumber has jumped to about $800 per thousand board feet last week. That’s up from a mid-April low of around $320 but also is well above a pre-pandemic price of about $425.

Supply is one issue, but industry experts say government regulation is also contributing to the price increases. “We are lobbying the President and the White House to help us with relieving some of the tariffs with Canada,” said Fowler, owner of JHF Homes. Canada is a top supplier of lumber for the United States.

What is the forecast for post-pandemic prices? Won’t home prices drop after the lumber mills are back to full production again. It’s not likely.

“The housing market has been one of the strongest sectors in the economy and prices have been accelerating all summer long so that was a huge miss by professional forecasters earlier this year,” said Jeff Tucker, Senior Economist at Zillow. “Then, when we resurveyed them just last month they completely changed their tune and are looking forward to robust price growth for several years in the housing market.”

My advice, if you’re thinking about building a new home, don’t wait until next spring. Do it right now!

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