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Even though more people are acquiring home loans to purchase properties, the construction of new homes has slowed considerably due to rising building costs. If you're considering new construction, understanding why this uptick occurred can help you calculate a realistic budget and seek the needed funds to finish the project. Below are several reasons why construction costs are increasing and how this has impacted the real estate market.

How Have Increased Construction Costs Impacted Real Estate?

1. Limited Supplies

The COVID-19 pandemic led to a major shortage of crucial building supplies, with lumber being the most affected. Many lumber mills temporarily ceased operation during the pandemic, resulting in a massive drop in production. Also, with more people staying at home, homeowners had more time and energy to focus on DIY projects, which increased the demand for lumber when the production was reduced. This results in limited access for homebuilders, which means the price increases for anyone who wants to secure a home loan for construction.

2. Decrease in Skilled Labor

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With access to supplies severely restricted, the demand for new homes fell, which reduced the available jobs for homebuilders. Also, some contractors chose to use smaller workforces to ensure proper social distancing on the job site, which resulted in slower turnaround times. Since the workers had to find other means of making money, they are no longer available to build homes, which means that there are fewer qualified professionals for the job.

3. Stalled Building Processes

Some contractors are starting construction on new homes and then putting off the project until the situation improves, with about 15% reporting that they are delaying the framing of a home after laying the foundation. Homebuilding projects are intensive undertakings that require months of planning, and without access to supplies, they take even longer. This means there aren't as many homes being built—even though there is a willing market for them. Limited materials and a decreased workforce may also have caused some sellers to delay putting their homes on the market until they can perform needed upgrades.

 

If you are planning to build a new residence and need a home loan for the process, contact Fairway Independent Mortgage Corp. - The Sharon Thompson Team in Foley, AL. They provide a variety of loan solutions to clients throughout Baldwin County, including traditional mortgages, VA loans, FHA loans, and Alabama Housing products. Call (251) 298-5304 to schedule a consultation, and visit them online to learn more about their process.

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