New home prices have been rising since 2012 according to CoreLogic's chief economist Frank Nothaft. Prices in the spring of 2019 were up 2 percent compared to a year earlier, partially because of rising building costs. In an article in CoreLogic's Insights blog, Nothaft quotes National Association of Home Builder (NAHB) figures that say about 60 percent of a new home's sales price reflects the construction costs of the home.
The major components of building costs are those associated with purchasing and preparing a lot, acquiring permits and inspections, hiring labor and buying materials. The last accounts for a large part of the overall structure cost and 2018 was a tough year for builders on that score. There was a significant price run-up in the two major components of framing, lumber and steel. Lumber prices jumped 20 percent and steel prices were up 14 percent in September 2018 compared to a year earlier. While steel prices have continued to rise, an 11 percent drop in lumber prices through this past June has offset framing costs and those account for nearly one-fifth of the cost of building a home.
Labor costs are another matter. Much has been written about the shortage of construction labor. Many workers left the trades during the Great Recession and the industry has had trouble luring young people and especially young women into the field. Vacancies as a percent of construction job are now at the highet level in 18 years and compensation has risen accordingly. It is up 3 percent this year, about double the rate of inflation. Worker retention is an issue as well.
Nothaft says rising land and labor costs will probably offset any savings builders might realize from lower lumber prices and overall costs for a new home will continue to rise.