Worried About Increased Lumber Prices & Labor Costs? Here are 3 Alternatives to Consider
Quick confession: I’m not an expert in lumber. I don’t know the markets very well, how things move, or any price wars going on. What I do know is how lumber prices are affecting my clients, and how they’re currently affecting Springhouse Structures while we’re working on a spec home.
So, how much do lumber prices impact new builds? How can you empower yourself as a homeowner to make the right decisions? Let’s take a deeper dive.
How much do lumber prices impact new builds?
The number we’re working with at the moment is about 10%. That’s a big number. So, for example, let’s say we’re working with a million-dollar house. It’s simple math: 10% of one million is $100,000 in lumber and associated increased costs. If you’re working with a $500,000 home, that’s $50,000 more out of your budget.
Why 10%? The short answer is that the price of wood lumber prices are going up. There are so many reasons why this is happening—the biggest being COVID supply chains and winter storms. Originally, we thought these prices were going to correct themselves after the election, no matter who won. But then, because of the natural disasters including COVID, it didn’t.
So, what do we do now?
For Springhouse Structures, this past summer we designed a spec home that had been approved. We were ready to dig a hole and start the building process, but then we had to pull the plug in the fall because lumber prices were too high. We kept being told by our suppliers to hold for three months—surely things would eventually go back to normal, right? Well, that didn’t happen, and we’re still holding.
A similar situation happened to one of our clients. We had fully designed their house and wanted to bring in a trusted, outside builder to price the construction of the house. When they priced it back in September, it was high, so we made some design changes that didn’t affect the awesomeness of the house. We were shocked when the redesign did not bring down the price at all! This was abnormal, because the design changes we made should’ve resulted in significantly lower construction prices. Unfortunately, the prices didn’t lower—they went up because of lumber construction and labor.
Here’s a picture of that house—just because I think it’s amazing!
So, what can you do when this happens to you? Let’s take a look at some options to consider.
What can you do as a homeowner when lumber prices are too high?
Alternate Materials
Alternate materials are things like SIPs, which stand for structural insulated panels. The panels consist of an insulating foam core sandwiched between two structural facings. You can use these for all of the walls and roof of your home. It’s a great product, but it typically has a higher cost upfront, plus an additional labor cost, because it’s more of a specialized field of installation. However, this field may become more common as lumber prices continue to skyrocket. ICF is another option we are working through. Insulated Concrete Forms has no wood in the product and can be used for all exterior walls.
Time
Another option is to give it time. Wait until the literal storm passes and the lumber prices correct themselves. I made that decision for Springhouse Structures in September, and now I don’t believe we should wait any longer, because I’m not sure it’s going to be corrected anytime soon. Labor and lumber prices are high, making everything else—like cabinets, studs and trusses—more expensive. Every product you’re putting in your home is affected by these time delays and high price tags, because everyone uses the same natural materials when building a home. Additionally in regards to time, you need to consider current mortgage rates. Interest rates are incredibly low right now, and we’re balancing that with a 10% price hike on lumber. Bottom line? Waiting is not a smart move.
Appraisals
An appraisal process on a new build is when you turn in the drawings and budget from the contractor to the bank, and the bank does an appraisal just like they would with a real physical house. They look at the materials, what the home will look like, what land it’s on, what your neighbors are like, etc. This is where things get tricky. Let’s say you’re building in a new neighborhood, and the house right beside your lot was built a year or more earlier. The appraisal is going to come back less than 10% of the cost because of the appraisal comparison—the comparables in the neighborhood were built for less.
To avoid this from happening, you’ll want to ask your builder to talk directly with the appraiser about the additional cost. Why is it higher? What’s the reality in the market right now? Have your builder talk through what’s happening right now, and that it’s not going to end.
You can also ask for a cost-based appraisal. In this case, the appraiser will look at the cost breakdown that your builder gives them, which will help them understand the actual replacement cost of your home. This will hopefully give you a higher value. Otherwise, you’ll need to bring a check for the extra 10%.
Have any questions?
Although we covered a lot in this post, you may still have some other questions to help you navigate increased lumber prices and labor costs. Whether you’re involved in the custom home process now, or even just considering it, join our free Facebook group—we’ll help you answer any questions you might have! Also, feel free to invite anyone that you think would benefit from this collaborative. You’ll not only get advice from me, but from other people who have been through this, too.
Start the process.
When it comes to designing and building a custom home, nothing beats having a trusted, experienced team of architects on your side. Let’s set up a call to meet, discuss your goals, answer your questions, and settle your fears. We can’t wait to meet you!